Vertical Agreements and Dominant Firms
1.1. What authorities or agencies investigate and enforce the laws governing vertical agreements and dominant firm conduct?
The Competition Commission of India (“CCI“) is the primary Indian authority that enforces laws governing vertical agreements and dominant firm conduct. The CCI is assisted by its investigative arm – the Director General (“DG“). Please see our response to question 1.9 for an overview of the appellate authorities and processes.
In addition, sector-specific regulators (such as the Telecom Regulatory Authority of India (“TRAI“) established under the Telecom Regulatory Authority of India Act, 1997 and the Petroleum and Natural Gas Regulatory Board created by the Petroleum and Natural Gas Regulatory Board Act, 2006) are empowered to promote and maintain competition in their respective sectors, which extends to anti-competitive conduct by enterprises operating in those sectors.
1.2. What investigative powers do the responsible competition authorities have?
The CCI and the DG are vested with the powers of an Indian civil court for, inter alia, enforcing competition rules, including those relating to vertical agreements and dominant firm conduct. These powers extend to:
> summoning and enforcing the attendance of any person and examining them on oath;
> requiring the discovery and production of documents;
> receiving evidence on affidavit;
> issuing requests for the examination of witnesses or documents; and
> requisitioning public records or documents from any office.
The DG is also empowered to conduct dawn raids and the CCI may call upon experts from disciplines such as economics, commerce, accountancy and international trade to assist in its inquiry. The DG is able to initiate an investigation (encompassing these powers) only further to a direction from the CCI, which sets out the scope of the DG’s investigation. However, further to a recent amendment in the CCI’s General Regulations, the DG now has the ability to investigate any other fact(s) it may discover during the investigation, beyond those mentioned in the complaint or the CCI’s direction to investigate.
1.3. Describe the steps in the process from the opening of an investigation to its resolution.
An overview of the process, from the opening of an investigation to its resolution before the CCI, is set out below:
Initiation stage: The CCI may inquire into allegations of behavioural contraventions: (a) on its own; (b) on receipt of ‘information’ from any person, including consumers or trade associations; or (c) by way of a reference made to it by Government (Information).
Formation of a prima facie view by the CCI and initiation of investigation: The CCI must, on a ‘best efforts’ basis, reach a preliminary conclusion on whether the relevant conduct contravenes the provisions of the Competition Act, 2002 (the “Act“) within 60 calendar days. In practice, this takes much longer. As part of this process, the CCI may, at its discretion, call parties for a ‘preliminary conference’ to understand the conduct in more detail. If the CCI reaches a prima facie conclusion as to the contravention, it directs the DG to carry out a detailed investigation. If not, it closes the matter after recording its reasons. Such closure orders are published on the CCI’s official website.
Investigation by the DG: The Act requires the DG to submit its investigation report to the CCI within 60 days from the receipt of a direction to investigate from the CCI. This may be extended by the CCI up to a ‘reasonable period’ further to specific requests from the DG. Typically, the DG seeks multiple extensions from the CCI, and an investigation by the DG may take anywhere between a few months to more than two years. In its investigation report, the DG makes a finding on fact and recommends certain actions by the CCI on the basis of those facts.
CCI’s review of the report of the DG and final order: Parties are typically given 30 days from receiving the investigation report of the DG to respond to the report’s findings. Parties are also invited to make oral arguments before the CCI. As far as possible, the CCI is required to pass its final order within 21 working days from the conclusion of the oral hearings. However, as with the investigation process, this process typically takes much longer and has, in the past, taken up to 47 months. Subsequent to its review of the investigation report of the DG and parties’ submissions, the CCI may pass an order closing the inquiry, directing the DG to conduct further investigation, or finding a contravention.
1.4. What remedies (e.g., fines, damages, injunctions, etc.) are available to enforcers?
The CCI could adopt the following measures as part of a contravention decision relating to vertical agreements and abuse of dominant position:
Fines: The CCI can levy a penalty of up to 10% of the average relevant turnover for the three preceding financial years of the contravening enterprise(s). The CCI can also penalise the individual office-bearers responsible for the conduct of the business of the enterprise found guilty of contravening the provisions of the Act.
Cease-and-desist directions: The CCI can direct the erring enterprise to cease and desist from carrying on with the anti-competitive conduct.
Interim injunctions: The CCI can temporarily restrain a party from carrying on with its anti-competitive or abusive acts.
Other remedies: The CCI has other wide-ranging remedial powers, which include: (a) directing a division of an enterprise enjoying a dominant position to ensure that such enterprise does not abuse its dominant position (this power is yet to be exercised by the CCI); (b) directing any agreement to be modified in a prescribed manner; (c) passing any order as the CCI may deem fit (which are often in the nature of other behavioural remedies); and (d) direct payment of costs.
1.5. How are those remedies determined and/or calculated?
For determining the quantum of fine within the 10% capped limit (explained in our response to question 1.4), the CCI is required to consider aggravating and mitigating factors. Notably, a 2017 decision of the Supreme Court of India (“SCI“) concluded, among other things, that the CCI is required to: (a) compute fines based on the turnover derived from the infringing product or service, as opposed to the total turnover of an enterprise; and (b) follow the principle of proportionality while determining fines.
Moreover, as the response to question 1.4 explains, the CCI has wide-ranging powers to impose remedies once it finds a behavioural contravention. These remedies typically range from straightforward cease-and-desist directions to more robust remedies, such as directing amendments to exclusive clauses, modifying by-laws of erring associations, making after-market components available in the open market through an efficient network and enhancing transparency, directing supply on fair terms, and formulating proper processes and parameters to avoid unfair treatment of stakeholders.
1.6. Describe the process of negotiating commitments or other forms of voluntary resolution.
Presently, the Act does not contemplate any mechanism by which parties may offer or negotiate remedies with the CCI for abuse of dominance or anti-competitive vertical agreements. That said, the Madras High Court in March 2015 held that the CCI is empowered to accept ‘compromises’ or ‘settlements’ between parties, where a party found guilty of engaging in anti-competitive conduct agrees to discontinue the impugned conduct, with an undertaking to not repeat it. Any such compromise or settlement would, per the Madras High Court, be subject to CCI’s scrutiny including to examine whether the public interest may continue to suffer or the object of the inquiry would stand defeated by the acceptance of the compromise. In either event, the CCI is empowered to penalise the party for contravening the Act. (The Tamil Nadu Film Exhibitors Association v. CCI (“TNFEA Case“).)
Moreover, in March 2020, the Ministry of Corporate Affairs released a Draft Competition (Amendment) Bill, 2020 (“Draft Bill“), for public comment, which incorporated a commitments and settlements process. This is yet to be effected.
1.7. At a high level, how often are cases settled by voluntary resolution compared with adversarial litigation?
As stated in our response to question 1.6, as the Act does not presently contemplate any mechanism for voluntary resolution in relation to abuse of dominance or anti-competitive vertical agreements, matters are not settled by way of voluntary resolutions, including after TNFEA Case.
1.8. Does the enforcer have to defend its claims in front of a legal tribunal or in other judicial proceedings? If so, what is the legal standard that applies to justify an enforcement action?
Unlike the Department of Justice or the Federal Trade Commission in the United States, the CCI is vested with both regulatory and adjudicatory powers, and adjudicates on questions of anti-competitive conduct. That said, as explained in the response to the following question, the CCI defends its decisions before the appellate court or writ courts, should a party challenge its decision (as a proper or necessary party to such proceedings).
1.9. What is the appeals process?
Any person that is demonstrably aggrieved by a decision of the CCI may challenge it in an appeal before the National Company Appellate Tribunal (“NCLAT“) within 60 days from the date of the receipt of the decision. Any decision or order of the NCLAT may further be appealed to the SCI within 60 days of such decision or order being issued to parties. In terms of duration, while the NCLAT is required to dispose of appeals within a maximum period of 180 days on a ‘best efforts’ basis; in practice, this process takes anywhere between one to two years.
1.10. Are private rights of action available and, if so, how do they differ from government enforcement actions?
Competition law enforcement in India is not adversarial. The Act is exclusively enforced by the CCI (along with the appellate courts), and remedies by the CCI are accorded in rem. Private litigants cannot bring a lawsuit alleging anti-competitive conduct in any other forum apart from the CCI. Although private entities may file ‘information’ before the CCI, alleging anti-competitive conduct, once filed, the CCI investigates and the Act presently does not contemplate settlements. Thus, even if a litigant withdraws its complaint, the CCI is required to complete its investigation and reach a finding of its own.
That said, once the CCI finds an enterprise to have contravened the provisions of the Act, any person aggrieved by such anti-competitive conduct may approach the appellate authority, the NCLAT, to seek compensation for the loss suffered on account of such conduct. Although a handful of compensation claims are pending before the NCLAT (illustrated below), a final resolution of a compensation application is yet to be reached.
> MCX Stock Exchange Limited filed a compensation claim against National Stock Exchange (“NSE“), claiming loss suffered as a result of NSE’s pricing strategy in the currency derivatives segment.
> Compensation claims have been filed against Ghaziabad Development Authority, Coal India Limited and South Asia LPG Company Pvt. Ltd. arising out of abuse-of-dominance decisions against them.
1.11. Describe any immunities, exemptions, or safe harbours that apply.
The Central Government has the power to exempt any class of enterprise, agreement or practice from the application of the Act (or any of its provisions). While this power is sparingly used, the Central Government has exempted vessel-sharing agreements in the liner shipping industry from the provisions concerning anti-competitive agreements, in respect of carriers of all nationalities operating ships of any nationality from any Indian port. This exemption does not apply to concerted practices involving the fixing of prices, the limitation of capacity or sales and the allocation of markets or customers.
In addition, the Act creates the following carve-outs with respect to restrictions in vertical agreements:
> a legitimate holder of intellectual property is allowed to impose vertical restraints that are found to be both ‘reasonable’ and ‘necessary’ for protecting the intellectual property right in question; and
> vertical restraints in agreements which exclusively relate to the production, supply, distribution or control of goods or provision of services for export of goods from India are not prohibited (since they are unlikely to impact competitive conditions in India).
1.12. Does enforcement vary between industries or businesses?
The CCI’s mandate under the Act is to regulate anti-competitive conduct by ‘enterprises’, ‘persons’, or their associations. Accordingly, the CCI’s inquiries usually concern specific enterprises, as opposed to entire sectors.
This does not, however, preclude the CCI’s ability to de facto examine sector-level conduct by directing the DG to investigate each enterprise that is involved in ‘similar anti-competitive practices’. For instance, in a separate set of cases involving the spare-parts market and the market for in-house sale of syringes by hospitals, the CCI expanded the investigative scope to cover almost every entity concerning those markets (Vivek Sharma v. Becton Dickinson India Private Limited; see also Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors. (Autoparts)).
The Delhi High Court (a judicial court) has confirmed that the DG itself is empowered to expand its investigative scope to cover other enterprises which may also be engaging in similar anti-competitive practices (Cadila Healthcare Ltd. & Anr. v. CCI & Ors.). Enforcement actions aimed at specific enterprises and/or all enterprises in a given sector follow similar enforcement processes and standards.
As part of its regulatory role, the CCI also carries out market-wide studies in sectors that are strategic or sensitive to the economy. These may culminate in its sectoral findings and non-binding recommendations. For example, in 2018 the CCI published a policy note titled Making Markets Work for Affordable Healthcare which recommended certain practices for public procurement in the pharmaceutical sector. More recently, in January 2020 the CCI issued its report further to its study of India’s e-commerce market and published its key findings (E-Commerce Report). The E-Commerce Report focused on key e-commerce sectors such as: (i) online shopping; (ii) travel related services; and (iii) online food delivery platforms.
1.13. How do enforcers and courts take into consideration an industry’s regulatory context when assessing competition concerns?
The CCI has, more often than not, asserted its jurisdiction in cases involving enterprises that are subject to the jurisdiction of sector-specific regulators, finding that its jurisdiction does not interfere with those of sectoral regulators. The CCI derives this power from a statutory principle in the Act which confirms that its provisions are in addition to, and not in derogation of, other laws. Along the same lines, a 2016 decision of the Delhi High Court allowed the CCI to proceed with its review of allegations of dominance emanating from exercise of rights for standard essential patents against Ericsson, dismissing Ericsson’s plea that the presence of another remedy under the patents legislation would preclude the CCI’s jurisdiction over the issue (Telefonaktiebolaget LM Ericsson v. CCI & Anr.). In May 2020, the Delhi High Court reaffirmed this position when rejecting Monsanto’s challenge against CCI’s initiation order directing an investigation into Monsanto’s alleged anti-competitive practices (Monsanto Holdings Pvt. Ltd. v. CCI (“Monsanto Case“)). In the context of the overlapping regulatory jurisdiction, the SCI has clarified that if a sector-specific regulator (in this case, the TRAI) is already deciding certain jurisdictional issues, which are also integral for the CCI to reach a finding, the CCI must defer its inquiry until such issues are settled by the sector-specific regulators (CCI v. Bharti Airtel Limited & Ors. (“Bharti Airtel“)).
In some other cases, the CCI has itself chosen to close inquiries where it believed that certain allegations were better addressed by the sector-specific regulators. For example, in a case involving allegations of denial of market access in the supply of electricity, the CCI considered the Central Electricity Regulatory Commission or State Electricity Regulatory Commission to be better suited to address such concerns (Bajrang Steel and Alloys Pvt. Ltd. v. Western Electricity Supply Company of Orissa; see also Achintya Mukherjee v. Loop Telecom Pvt. Ltd & Ors.). Similarly, the CCI relied on the opinion of the Insurance Regulatory and Development Authority of India when closing an inquiry that alleged that enhanced insurance premiums amounted to the imposition of ‘unfair prices’ in violation of the Act (Indian Chemical Council v. General Insurance Corporation of India).
1.14. Describe how your jurisdiction’s political environment may or may not affect antitrust enforcement.
The CCI falls within the Ministry of Corporate Affairs of the Government of India. The Government has the power to exempt any class of enterprises or agreements from the application of the Act, issue directions to the CCI on policy issues, and even supersede the CCI if it fails to perform its functions. The Government is also involved in the appointment of the CCI’s Chairperson and members. The Act does not contemplate any role for the executive in the CCI’s substantive review of competition cases, including on vertical restraints or abuse of dominant position.
1.15. What are the current enforcement trends and priorities in your jurisdiction?
Given that almost 80% of contravention decisions issued since 2019 were cartel-related, the enforcement trend appears to focus on cartel-related conduct, with several decisions arising from leniency applications. In respect of vertical restraints, the CCI tends to initiate its investigations only where the enterprise enforcing the vertical restraint has a high market share in the relevant market (Noida Software Technology Park Ltd. v. Star India Pvt (“Noida Software Case“); In re: Alleged anticompetitive conduct by Maruti Suzuki India Limited vis-a-vis dealer (“MSIL“)). In most cases, the CCI closes the inquiry at an initial stage after undertaking a preliminary assessment of whether the alleged vertical restraint causes, or is likely to cause, an appreciable adverse effect on competition (“AAEC“) in India (Karni Communications Pvt. Ltd. v. Vivo Mobile India Pvt. Ltd. (“Vivo“)). Where it finds that the market share of the alleged enterprise was not significant (Accessories World Car Audio Private Limited v. Sony India Private Limited & Anr. (“SIPL“)) or the restraints were objectively justified and there was no evidence of exclusionary conduct (RKG Hospitals Pvt. Ltd. v. Oravel Stays Pvt. Ltd.), the CCI, more often than not, closes the inquiry at a preliminary stage. Publicly available statistics indicate that while only 20% of the contravention decisions issued by the CCI since 2019 related to abuse of dominance, enforcement for abuse of dominance was higher between 2018 and 2019, at around 25%.
1.16. Describe any notable recent case law developments in respect of, e.g., vertical agreements, dominant firms and/or vertical merger analysis.
While the CCI has issued a few noteworthy substantive decisions in respect of vertical restraints, including resale price maintenance (“RPM“) (Vivo; KC Marketing v OPPO Mobiles MU Private Limited (Oppo)) (discussed in some detail below), more generally the following two developments were noteworthy:
> The SCI’s decisions in Bharti Airtel on overlapping regulatory jurisdictions (please see our response to question 1.12).
> On a constitutional challenge instituted by some of the Original Equipment Manufacturers (“OEMs“) penalised by the CCI in Autoparts, the Delhi High Court directed the following changes in the CCI’s functioning:
> A ‘judicial member’ of the CCI must participate in any adjudicatory hearings.
> The ‘revolving door’ concept whereby any members of the CCI could participate in any proceeding at any given point of time was unconstitutional. Only those members who hear a case should decide it.
> The provision which allows the CCI Chairperson to have a ‘casting vote’ is unconstitutional.
> The CCI could expand the scope of inquiry to include other allied issues and parties.
In addition, the following notable developments took place:
> E-Commerce Report: In January 2020, the CCI published the E-Commerce Report, in which it examined: (i) platform neutrality; (ii) platform-to-business contract terms; (iii) platform price parity clauses; (iv) exclusive agreements; and (v) deep discounts in online platform markets for shopping, food delivery and travel. It also identified certain self regulatory measures in respect of certain practices for e-commerce.
> Initiating investigation into platform markets: Around the same time, the CCI initiated investigations against two online shopping platforms, i.e., Flipkart and Amazon (Delhi Vyapar Mahasangh v. Flipkart Internet Private Limited & Anr. (“Flipkart“)) as well as MakeMyTrip-GoIbibo (“MMT-Go“) and Oravel Travels Pvt. Ltd (“OYO“) to investigate anti-competitive allegations in the market for online intermediation services for booking hotels in India and the market for franchising services for budget hotels in India respectively (Federation of Hotel & Restaurant Associations of India v. MakeMyTrip India Pvt. Ltd. & Ors. (“MMT Case“)). In its preliminary order directing an investigation against MMT, the CCI departed from its 2017 decision approving MMT’s acquisition of GoIbibo (MIH Intranet SEA Pte. Ltd/MakeMyTrip Limited). The CCI held that the intervening period has established online travel agencies (“OTA“), such as MMT, as a distinct channel for hotel bookings. Hotel operators now perceive OTAs as a distinct mode of distribution and may not be viewed as substitutable with offline modes or direct sales, without losing customer reach. Similarly, the CCI’s preliminary order in Flipkart, issued in January 2020, departs from its findings in its earlier decision in All India Online Vendors Association v. Flipkart India Private Limited & Anr., issued in November 2018. In the 2018 decision, the CCI found that there were multiple online platforms and although Flipkart had considerable size and resources, no single player commanded a dominant position. In its later decision directing investigations into Flipkart and Amazon, the CCI, however, found that strong network effects generated a source of market power for platforms such as Flipkart and Amazon and that exclusive arrangements may be used as an exclusionary tactic to foreclose competition, warranting investigation.
> Other notable decision relating to e-commerce: In the context of online accommodation booking platforms, the CCI opined that franchisee agreements stand on a different footing, as branding plays a vital role in such agreements. The CCI held that restrictions to protect know-how and brand value in such agreements, even where the franchisor had market power, constituted a valid business justification (RKG Hospitalities Pvt. Ltd v. Oravel Stays Pvt. Ltd (“RKG-OYO“)).
> Vertical merger control decisions: The CCI directed remedies during its review of the acquisition of shares in OLA, a cab aggregation platform, by Hyundai Motor Company (“HMC“) and Kia Motors Corporation (“KMC“). The remedies included directions to prevent exclusive or preferential treatment towards HMC and KMC by OLA. (Hyundai Motor Company and Kia Motors Limited/ANI Technologies Private Limited). Similarly, in Schneider Electric India Pvt. Ltd.’s (“SEIPL“) acquisition of shareholding in Larsen & Toubro Limited (“L&T“), the CCI directed a set of behavioural commitment to prevent any exclusivity or detrimental treatment towards L&T by SEIPL (“SEIPL/L&T“).
2. Vertical Agreements
2.1. At a high level, what is the level of concern over, and scrutiny given to, vertical agreements?
In all the infringement decisions issued by the CCI, we estimate that less than 5% of the cases relate to vertical restraints. The vast majority of the CCI’s decisions to date relate to cartels and abuse of dominance. The decisional practice of the CCI has confirmed that the CCI will interfere in vertical restraints only where the enterprise enforcing the restraint has sufficient market power in the relevant market and there are disproportionate or no objective justifications for the restraints enforced.
2.2. What is the analysis to determine (a) whether there is an agreement, and (b) whether that agreement is vertical?
‘Agreement’ has been widely defined under the Act to include any arrangement, understanding or action in concert, whether or not it is formal, in writing or intended to be enforceable by legal proceedings (Section 2(c) of the Act). An agreement is considered to be vertical if it is amongst enterprises functioning at different stages or levels of a production chain in different markets in respect of the production, supply, distribution, storage, sale or price of, or trade in goods or the provision of services (Section 3(4) of the Act).
2.3. What are the laws governing vertical agreements?
The Competition Act is the primary legislation which governs vertical agreements. Although an inclusive list, the Act specifically identifies the following kinds of vertical restraints that are prohibited only if, upon investigation, the CCI is able to establish that they cause, or are likely to cause, an AAEC in India:
> tie-in arrangements: a purchaser of goods is required to purchase any other goods as a condition of purchase;
> exclusive supply agreements: which restrict, in any manner, the purchaser from acquiring or otherwise dealing with the goods of the seller or any person;
> exclusive distribution agreements: which limit, restrict or withhold the supply of goods or allocate any area or market for the disposal or sale of goods;
> refusal to deal: which restricts, or is likely to restrict, by any method, the person or persons from or to whom goods are bought and sold; and
> RPM: any agreement wherein goods are sold on the condition that the resale price shall be the price stipulated by the seller, unless clearly stated that prices lower than those prices may be charged.
While certain sector-specific regulators in India also enforce rules that are aimed towards promoting competition in their respective sectors (please see our responses to questions 1.1 and 1.13), the CCI’s powers are in addition to, and not in derogation of, other statutory regulators.
2.4. Are there any types of vertical agreements or restraints that are absolutely (“per se”) protected? Are there any types of vertical agreements or restraints that are per se unlawful?
Only the exemptions identified in the responses to questions 1.11 and 2.11 are applicable to vertical restraints. There are no block exemptions or safe harbour provisions relevant to the analysis of vertical restraints in India.
There are no vertical agreements or restraints covered under the Act which are per se unlawful. The CCI assesses vertical agreements under a ‘rule of reason’ framework, and only penalises such agreements which lead to actual or potential AAEC.
2.5. What is the analytical framework for assessing vertical agreements?
Vertical restraints in India are assessed by the CCI under the ‘rule of reason’ framework – i.e., vertical restraints are prohibited only if the CCI, upon an inquiry, concludes that they cause, or are likely to cause, an AAEC in India. An assessment of AAEC involves considering the net impact of certain pro-competitive and anti-competitive factors.
The anti-competitive harms that the CCI is required to examine are:
> creation of barriers to new entrants in the market;
> driving existing competitors out of the market; and
> foreclosure of competition by hindering entry into the market.
The pro-competitive benefits that the CCI is required to examine are:
> accrual of benefits to consumers;
> improvements in the production or distribution of goods or provision of services; and
> promotion of technical, scientific and economic development by means of the production or distribution of goods or provision of services.
Inherent in the CCI’s assessment of market foreclosure is an analysis of other factors such as the market position of the enterprise enforcing the vertical restraint, the duration of the restraint, etc. (please see our response to question 2.8). In its assessment of vertical restraints, the CCI also often considers whether such restrictions are objectively necessitated or justified (please see our response to question 2.14).
2.6. What is the analytical framework for defining a market in vertical agreement cases?
Unlike provisions relating to abuse of dominance, there is no explicit requirement for the CCI to define a relevant market for examining vertical restraints. However, to appropriately examine the market power of the involved enterprises and to consider whether a vertical restraint causes or is likely to cause an AAEC in India, the CCI considers it important to examine allegations of vertical restraints in the context of appropriately defined relevant markets. Indeed, the NCLAT set aside a CCI decision penalising Hyundai for entering into an anti-competitive RPM on the grounds that the CCI failed to, inter alia, apply statutory principles for defining a relevant market (Hyundai Motor India Ltd. v. CCI & Ors. This decision is currently pending adjudication before the SCI).
A relevant market is determined on the basis of a ‘relevant product market’ (“RePM“) and a ‘relevant geographical market’ (“ReGM“). An RePM is defined on the basis of products/services that are considered substitutable by consumers, whereas an ReGM is delineated on the basis of homogeneity of competitive conditions across a region. The response to question 3.3 sets out in some detail the applicable statutory principles for defining a relevant market.
2.7. How are vertical agreements analysed when one of the parties is vertically integrated into the same level as the other party (so-called “dual distribution”)? Are these treated as vertical or horizontal agreements?
There is no legislative guidance on how the CCI should characterise dual distribution agreements. The CCI’s decisional practice on dual distribution is also largely untested, but acknowledges that buyer-seller agreements may lead to anti-competitive effects if the buyer and seller also compete in a related market. In a recent decision relating to cartelisation among battery suppliers, the CCI characterised a ‘mutual comfort clause’ in a supply arrangement between a manufacturer-seller (Panasonic) and buyer-reseller (Godrej), which prevented parties from taking steps detrimental to the other’s market interest, as a horizontal anti-competitive agreement. For its analysis, the CCI noted that: (a) Godrej was re-selling batteries under a separate brand-name and was viewed by consumers as a competitor in the retail market for batteries; and (b) Godrej (buyer) and Panasonic (seller) operated on a principal-to-principal basis (i.e., not an agency or joint-venture relationship to justify a commonality of economic interests) (In re: Anticompetitive conduct in the Dry-Cell Batteries Market in India (“Godrej“)).
Given the CCI’s reasoning and conclusion in the Godrej case, it appears that the CCI’s examination of dual-distribution agreements would involve not only the relationship, but equally the operative conduct of the parties.
2.8. What is the role of market share in reviewing a vertical agreement?
Assessment of market shares while examining vertical restraints is not a mandatory requirement under the Act. The CCI’s decisional practice, however, confirms that it would consider vertical restraints to raise antitrust concerns only when they are enforced by enterprises enjoying a sufficient degree of market power. Indeed, the CCI has, on multiple occasions, rejected allegations of vertical restraints where enterprises’ market shares were insignificant. For example, the CCI dismissed allegations of RPM against a manufacturer of Vivo mobile handsets in India on account of low (and declining) market shares, low turnover and a high degree of inter-brand competition in the Indian smartphone market (Tamil Nadu Consumer Products Distributors Association v. Fangs Technology Private Limited (“Fangs Technology“)).
Similarly, the CCI dismissed allegations of exclusivity in distribution agreements because both parties to the agreement had insignificant market shares. The CCI held that this diminished the likelihood of market foreclosure (Automobiles Dealers Association v. Global Automobiles Limited & Ors.; SIPL). The CCI re-asserted its view in a recent preliminary order noting that the magnitude of anti-competitive effects arising out of vertical restraints would depend, amongst other things, on the market power of the imposing enterprise/platform (MMT Case).
2.9. What is the role of economic analysis in assessing vertical agreements?
Consistent with the objective of the Act, the examination of vertical restraints also follows an ‘effects-based’ analysis, for which a sound economic analysis is key. The effects-based approach requires establishing an actual or likely appreciable adverse effect on competition in India. This assessment requires balancing any or all of the anti-competitive and efficiency-enhancing economic factors listed in the response to question 2.5, inherent in which is a rigorous economic analysis. Thus far, the CCI’s application of these factors has usually focused on factors such as likelihood of price increase (Fx Enterprise Solutions India Pvt. Ltd. & Anr. v. Hyundai Motor India Ltd. (“Hyundai“)), presence of other competitors in the market and their market strength (Ghanshyam Dass Vij v. Bajaj Corp Ltd. & Ors.), economic peculiarities of a sector (Faridabad Industries v. Adani Gas Limited (Faridabad Industries)), actual sales information to assess competitive harm (Jindal Steel and Power Ltd. v. Steel Authority of India Ltd (“SAIL“)), and lack of consumer harm due to high inter-brand competition (Oppo; Vivo) (see also Autoparts).
2.10. What is the role of efficiencies in analysing vertical agreements?
As the response to question 2.5 explains, the CCI is required to examine pro-competitive effects or efficiencies arising out of vertical restraints. These include: consumer benefits; improvements in the production or distribution of goods or provision of services; and promotion of technical, scientific and economic development. Indeed, the CCI acknowledges that rules on vertical restraints must not stifle pro-competitive agreements.
2.11. Are there any special rules for vertical agreements relating to intellectual property and, if so, how does the analysis of such rules differ?
‘Reasonable’ restrictions ‘necessary’ for protecting any intellectual property rights registered under one of the following intellectual property laws in India are afforded protection from the charging provisions setting out the law for vertical restraints:
> the Copyright Act 1957;
> the Patents Act 1970;
> the Trade and Merchandise Marks Act 1958 or the Trade Marks Act 1999;
> the Geographical Indications of Goods (Registration and Protection) Act 1999;
> the Designs Act 2000; and
> the Semi-conductor Integrated Circuits Layout-Design Act 2000 (“IPR Exemption“).
The CCI tends to be conservative in extending the benefit of the IPR Exemption to vertical restraints, and has clarified that the IPR Exemption would not apply in cases where the holder could protect its IPR by adopting a less restrictive method (see Autoparts).
2.12. Does the enforcer have to demonstrate anticompetitive effects?
Please see our response to question 2.5.
2.13. Will enforcers or legal tribunals weigh the harm against potential benefits or efficiencies?
Please see our response to question 2.5.
2.14. What other defences are available to allegations that a vertical agreement is anticompetitive?
Apart from the exemptions explained in the responses to questions 1.11 and 2.11, and the analytical framework explained in the response to question 2.5, the CCI often dismisses allegations of vertical restraints where it finds such restraints to be objectively necessitated or justified (for example, by industry-specific concerns). For example, in 2017, the CCI refused to interfere in Hyundai Motor India Limited’s objectively justified practice of cancelling its warranties upon installation of unauthorised compressed natural gas kits in its vehicles.
The CCI also recognises the concept of single economic entity doctrine, and does not typically subject agreements between enterprises forming part of the same group to the scrutiny of Section 3 of the Act (which includes the prohibition on vertical restraints). While allowing enterprises the benefit of the single economic doctrine, the CCI is likely to test de facto and de jure control exercised by a common parent over the management and affairs, including commercial decisions of the related companies.
2.15. Have the enforcement authorities issued any formal guidelines regarding vertical agreements?
The CCI has not issued any formal guidelines regarding vertical agreements. The CCI, however, regularly publishes non-binding material in the form of competition compliance manuals, advocacy booklets, FAQs, etc., to which enterprises may refer in order to align their practices with the Act.
2.16. How is resale price maintenance treated under the law?
RPM has been defined to include any agreement where goods are sold on the condition that the resale price shall be the price stipulated by the seller, unless it is clearly stated that prices lower than those prices may be charged. An RPM agreement that causes, or is likely to cause, an AAEC in India is prohibited. As the definition suggests, the Act only prohibits vertical agreements that prescribe a minimum or floor resale price. Fixing a maximum resale price by a supplier is unlikely to raise RPM-related concerns.
Although the CCI has examined a few resale price restrictions, it has reached a finding of infringement in only one instance. In Hyundai, the CCI found that Hyundai Motor India Limited’s (“HMIL“) prescription of a maximum permissible discount to its dealers stifled intra-brand competition and resulted in higher prices for consumers. The CCI noted that anti-competitive resale price restrictions could be achieved both directly or indirectly, for example, by: fixing the distribution margin; fixing the maximum level of discount; making the grant of rebates or the sharing of promotional costs conditional on adhering to a given price level; linking a resale price to the resale prices of competitors; or using threats, intimidation, warnings, penalties, delay or suspension of deliveries as a means of fixing the prices charged by the buyer. Notably, however, the CCI’s decision in Hyundai was set aside by the appellate court for failing to follow statutory principles for defining the relevant market and failing to independently verify the evidence collected by the DG (the case is currently pending at the SCI).
The CCI also recently dismissed allegations against Ola and Uber (two of the largest radio taxi aggregators in India) of fixing resale prices by way of their algorithms. It was alleged that as the algorithms decide the price to be charged by the drivers to riders, drivers do not have any discretion to charge a lower amount. The CCI held that a ‘resale’ is fundamental to an RPM arrangement and did not find a resale in the allegations against Uber and Ola. Instead, it found that the drivers were agents of Uber and Ola, with the companies offering composite services – characterised by a single transaction between the rider on the one hand and Ola or Uber on the other. It also noted that such dynamic pricing often results in prices lower than those charged by independent taxi drivers, which also shows that there is no fixed floor price as such. Together, the CCI held that these factors precluded any RPM concerns (Samir Agrawal v. ANI Technologies Pvt. Ltd. & Ors. (“Samir Agarwal“)).
Contrary to the CCI’s decision in Samir Agarwal, the CCI, while examining RPM allegations instituted by one of India’s major e-commerce marketplace platforms against a kitchen appliance-seller on its website, decided that although digital marketplaces facilitate transactions between the end-customers and the sellers (as opposed to being in a traditional buying-selling relationship), their relationship would satisfy the essentials of ‘resale’ in an RPM claim.
During the period of the CCI’s enforcement, CCI appears to have reviewed approximately 17 cases involving RPM allegations. Of these, the CCI has imposed a penalty for RPM in only one case (Hyundai), initiated investigations in two cases (MSIL; Vishal Pande v. Honda Motorcycle and Scooter Private Limited (Honda Motorcycles)), closed two after a more detailed investigation (KAFF; Intel) and appears to have closed the remaining inquiries at a preliminary stage.
2.17. How do enforcers and courts examine exclusive dealing claims?
The Act deals with the following kinds of exclusivity-related vertical restraints: (a) exclusive supply agreements; and (b) exclusive distribution agreements.
Exclusive supply agreements refer to agreements that restrict the purchaser from acquiring or otherwise dealing with the goods of the seller or any other person, and are prohibited only if they cause, or are likely to cause, an AAEC in India. Autoparts, for example, involved allegations against OEMs for restricting their authorised dealers from procuring spare parts from alternative sources. Finding that OEMs wielded significant market power in their respective after-markets for the supply of spare parts (a spare part for one OEM was found not to be substitutable with that of another, making each OEM dominant in the supply of their respective spare parts), the CCI found this restriction of prohibiting over-the-counter sales to have foreclosed independent repairers and other service providers from the market for automobile repair services. This restriction was assessed under provisions prohibiting ‘refusal to deal’ and ‘exclusive supply agreements’.
In 2011, the CCI dismissed allegations against an exclusive supply agreement that required Indian Railways to procure its supplies of rails exclusively from Steel Authority of India Limited, finding such restrictions to be justified on the basis of quality and safety requirements and the absence of an equally viable competitor (SAIL).
In Hyundai, the CCI assessed a circular issued by HMIL to its dealers directing them to purchase engine oil from only two designated vendors – Indian Oil Corporation Limited and Shell Oil Company. This, according to the CCI, limited dealers’ choice in procuring engine oil from alternate suppliers. The CCI, however, found this restriction to be objectively justifiable, and noted that since the customers could in fact procure engine oil from other suppliers, there was no risk of AAEC.
The CCI also recently directed an investigation into Asian Paints against allegations that it restricted dealers from procuring same/similar products from other sources at cheaper prices. In its preliminary order, CCI observed that these restrictions limited benefits to consumers and were in the nature of exclusive supply agreements. (JSW Paints Private Limited v. Asian Paints Limited.)
An exclusive distribution agreement, on the other hand, refers to agreements that limit, restrict or withhold the supply of goods or allocate any area, market or customers for the disposal or sale of goods. These agreements, like all vertical restraints, are prohibited if they cause, or are likely to cause, an AAEC in India. For example, in a recent case, the CCI did not find territorial restrictions in the distribution of mobile phones to be problematic because there was no restriction on (a) passive sales by dealers, and (b) dealers from dealing with competing products in and outside the designated region (Oppo; Vivo).
Similarly, in Fangs Technology, the CCI did not identify any concerns with a clause that prevented distributors from making sales to corporate customers without prior intimation or written consent of the seller. The CCI appreciated that this restriction was necessary to ensure the genuineness of the corporate sales (rather than to completely prevent them).
Recently, in its E-Commerce Report, the CCI identified two kinds of exclusivity agreements between brands/service providers and online platforms: (i) agreements under which a certain product offering is launched exclusively on a single online platform; and (ii) agreements which make a platform list only one brand in a certain product category. The E-Commerce Report notes that exclusive agreements may make rival platforms incur significant additional cost to induce the brands/service providers to give up the exclusive contract with the major platform. Further, the listing of only a single brand/service provider in a given product category on a major platform can make it difficult for rival brands/service providers to promote their products before customers.
The CCI does not, however, treat exclusive agreements as per se anti-competitive. These are examined on a case-by-case basis. The E-Commerce Report also recognises that such agreements may generate efficiencies and improve inter-brand competition.
In its recent set of preliminary orders, the CCI found exclusivity arrangements between brands and e-commerce platforms to potentially result in preferential treatment to the exclusion of competitors (Flipkart; MMT Case).
2.18. How do enforcers and courts examine tying/supplementary obligation claims?
A tie-in (or bundling) arrangement that causes, or is likely to cause, an AAEC in India is prohibited. Please see the response to question 2.3 for the definition of a tie-in arrangement. The CCI’s decisional practice lays down the following essentials for establishing an anti-competitive tie-in or bundling arrangement (Sonam Sharma v. Apple Inc.):
> the presence of two separate products or services capable of being tied;
> the seller must have sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product; and
> the tying arrangement must affect a substantial amount of commerce.
In Honda Motorcycles, the CCI has initiated an investigation into a tie-in arrangement, whereby a certain advertising cost is debited from the dealers’ accounts on the basis of the number of vehicles dispatched to them. The CCI has suggested in its preliminary order that this may create entry barriers for other advertising agencies.
In 2017, the CCI found that Hyundai’s practice of cancelling warranties for failing to comply with an obligation that required its dealers to fit Hyundai’s CNG-compliant cars with CNG kits from a Hyundai-prescribed agency (pegged a tie-in obligation) was objectively justified for maintaining quality (Hyundai).
2.19. How do enforcers and courts examine price discrimination claims?
Although price discrimination concerns are statutorily addressed by the provisions relating to abuse of dominant position (please see our response to question 3.5), a recent decision of the CCI characterised ‘price discrimination’ as a vertical restraint (i.e., constructive refusal to deal). Here, the CCI decided to investigate Star India and Sony Pictures Network India for allegedly offering channels to select distributors at higher prices and on more onerous commercial terms, as opposed to other distributors, who were offered channels on better commercial terms (Noida Software Case).
The CCI’s substantive tests for establishing price discrimination under the rules relating to vertical restraints are likely to mirror its past assessments under the provisions relating to abuse of dominance – i.e., the CCI will likely assess whether: (a) there are dissimilar prices applied to equivalent transactions; and (b) there is harm or likely harm to competition in the market (Schott Glass India Pvt. Ltd. v. CCI & Ors. (“Schott Appeal“)). Since the rules relating to vertical restraints expressly require demonstrating AAEC in India, the burden of demonstrating actual or likely competitive harm would likely be higher in such cases.
2.20. How do enforcers and courts examine loyalty discount claims?
There are no specific provisions under the Act for examining loyalty discount schemes. Loyalty discount schemes may, however, be examined as constructive refusal to deal (under the rules relating to vertical restraint) or unfair or discriminatory prices and conditions or denial of market access (under the rules relating to abuse by dominant firms) (please see our responses to questions 3.5 and 3.17).
Generally, the CCI does not consider discounts which are consistently applied by a seller on the basis of objective parameters to be problematic (see, for example, Pawan Kumar Agarwal v. Rashtriya Ispat Nigam Ltd.). In another decision, the CCI concluded that incentive schemes, which provided incentives to distributors for meeting sales requirements of the high-demand products versus low-demand products, were justified (ESYS Information Technologies Pvt. Ltd. v. Intel Corporation & Ors.). In a 2014 decision, the appellate tribunal clarified that volume-based discounts are unlikely to be considered discriminatory as long as differential discounts were not being offered to similarly placed parties (Schott Glass India Pvt. Ltd. v. Competition Commission of India & Ors. (“Schott CCI“)). Apart from this, the CCI has also resisted interfering in discount policies that are instrumental in deriving operational efficiencies or meeting competition on the merits (Dhruv Suri v. Mundra Port & Special Economic Zone Ltd. (“Dhruv Suri“); Sri Rama Agency v. Mondelez India Foods Private Limited (“Mondelez“)).
2.21. How do enforcers and courts examine multi-product or “bundled” discount claims?
There are no specific provisions under the Act for examining loyalty discount schemes. Multi-product or bundled discount claims can be examined as a constructive refusal to deal (under the rules relating to vertical restraints) or the imposition of unfair or discriminatory prices or conditions in the sale or purchase of goods or services, denial of market access, making conclusion of contracts subject to supplementary obligations, or leveraging (under the rules relating to abuse by dominant firms).
For example, in the abuse-of-dominance context, the CCI has examined the practice of making the sale of ‘amber tubes’ contingent upon the sale of ‘clear tubes’ from a glass manufacturer in order to successfully avail of discounts offered by the seller. The CCI found this ‘bundled’ discount scheme to be abusive, as the glass manufacturer essentially ‘tied’ both products with a view to protecting its dominance in the upstream market and maximised its revenues by selling the two products together by providing bundled discounts (Schott CCI). However, in appeal, the appellate tribunal disagreed with the CCI’s observations, inter alia, finding that the products were not entirely different, and that the infringing enterprise had no economic incentive to make the sale of amber tubes contingent on the sale of clear tubes (Schott Appeal).
2.22. What other types of vertical restraints are prohibited by the applicable laws?
Apart from the types of vertical restraints addressed above, the Act also identifies ‘refusal to deal’ as a vertical restraint, and prohibits such agreements if they cause an AAEC in India. Please see our response to question 2.3. A refusal to deal is prohibited if it causes or is likely to cause an AAEC in India.
2.23. How are MFNs treated under the law?
The CCI substantively examined Most Favoured Nation (“MFN“) clauses for the first time in the MMT Case, where it directed an investigation into MakeMyTrip India Pvt. Ltd. and Oravel Stays Pvt. Ltd. in the context of online hotel bookings. The CCI noted the distinction between ‘wide’ MFN clauses (which restrict lower prices/better terms from being offered on their website or any other sales channel) and ‘narrow’ MFN clauses (which restrict suppliers from offering better terms only on their own websites), and found that wide MFN clauses have the potential to remove incentives for platforms to compete on commissions and foreclose new low cost platforms (MMT Case).
The E-Commerce Report issued earlier this year recognised that MFN clauses may result in anti-competitive effects (e.g., higher commission rates) and pro-competitive effects (prevent free riding) and would therefore need to be assessed on a case-by-case basis. The E-Commerce Report observes that MFN clauses will be examined as vertical restraints under the ‘rule of reason’ framework. Where MFN clauses are imposed by dominant enterprises, they can also be examined as an abuse of dominance.
3. Dominant Firms
3.1. At a high level, what is the level of concern over, and scrutiny given to, unilateral conduct (e.g., abuse of dominance)?
The Act prohibits certain types of abusive conduct, as explained in our response to question 3.5 below. In all the infringement decisions issued by the CCI, we estimate that a little over 30% of the cases relate to abuse of dominant position. Although the CCI’s primary enforcement focus has been cartel-related conduct, the CCI has issued a significant number of final decisions relating to unilateral conduct and several entities have been penalised. Once an enterprise is found dominant in a relevant market, the CCI will scrutinise the alleged conduct closely to determine whether there exists a prima facie concern. The chances of the CCI concluding the existence of a prima facie concern increase once the enterprise is found dominant. For example, while the CCI initiated an investigation into the practice of requiring motorcycle servicing to be availed of exclusively from a dealer/dealership network in the case of a dominant enterprise (Honda Motorcycles), it did not initiate an investigation in the case of a competing enterprise (Shrikant Kale v. Suzuki Motorcycles India Pvt. Ltd.).
3.2. What are the laws governing dominant firms?
The Act regulates the conduct of dominant firms. Please see our responses to questions 1.12 and 1.13 for the relevance of sector regulators in promoting competition in their respective sectors.
3.3. What is the analytical framework for defining a market in dominant firm cases?
The first step for examining cases of abuse of dominant position is to delineate an accurate relevant market. Please see the response to question 2.6 for key principles applicable for relevant market definitions. Moreover, the Act sets out certain demand-side and supply-side substitutability factors that the CCI shall consider for defining an RePM (e.g., physical characteristics or end-use of goods, prices, consumer preferences, classification of industrial products, existence of specialised producers, etc.) and ReGM (e.g., regulatory trade barriers, local specification requirements, transport costs, consumer preferences, national procurement policies, etc.).
3.4. What is the market share threshold for enforcers or a court to consider a firm as dominant or a monopolist?
Please see our response to question 3.7.
3.5. In general, what are the consequences of being adjudged “dominant” or a “monopolist”? Is dominance or monopoly illegal per se (or subject to regulation), or are there specific types of conduct that are prohibited?
Dominance is not per se prohibited under the Act. Only where an enterprise is found to be dominant in a relevant market does the CCI consider whether its conduct is abusive in terms of the following types of behaviour:
> imposing unfair or discriminatory (a) conditions in the purchase or sale of goods or services, or (b) price in the purchase or sale (including predatory price) of goods or services;
> limiting or restricting (a) the production of goods or provision of services or market, or (b) technical or scientific development relating to goods or services to the prejudice of consumers;
> engaging in practice(s) resulting in denial of market access in any manner;
> 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 matter of such contracts; or
> using its dominant position in one relevant market to enter into or protect another relevant market.
3.6. What is the role of economic analysis in assessing market dominance?
A ‘dominant position’ has been defined as a position of strength enjoyed by an enterprise, in the relevant market in India, which enables it to operate independently of competitive forces prevailing in the relevant market or affects its competitors or consumers or the relevant market in its favour. The Act also sets out certain factors that the CCI must consider while assessing whether an enterprise enjoys a dominant position, which include market share, size and resources, economic power of the enterprise including commercial advantages over competitors, vertical integration, dependence of consumers, entry barriers, market structure and size, size and importance of competitors, etc. For example, to determine WhatsApp’s dominance in the market for instant messaging services through consumer communication apps, the CCI relied on the number of active users in India and the number of installations in India (Vinod Kumar Gupta v. WhatsApp Inc. (“WhatsApp“)).
Recently, in a contravention decision arising out of an abuse of dominance investigation, the CCI observed that statistical tools such as correlation and regression (used for ascertaining the substitutability of products while defining a relevant market) have to be used in conjunction with the relevant facts of the case (XYZ v. Association of Man Made Fibre Industry of India).
3.7. What is the role of market share in assessing market dominance?
While market share is indeed an important ‘initial indication’ for adjudging an enterprise’s market power, the CCI typically considers market shares in the context of the other factors identified in the response to question 3.6.
There is no statutory ‘bright line’ market share threshold above which an entity is presumed to be dominant; the CCI undertakes a case-by-case assessment on the basis of sector-specific considerations such as nature of competition, technology and innovation dimensions, competitive strategies of firms, etc.
For example, the CCI has consistently refused to find Uber or Ola, India’s two key cab aggregation enterprises, to be independently dominant in any of the cities they operate in, despite the fact that their individual market shares are as high as 50% in certain cities in which they operate. Clarifying that the Act does not recognise or address concerns of joint dominance, the CCI recognised that there was strong competition between Uber and Ola. It noted that undertakings in hi-tech markets often have high market shares in the early years of introduction that are typically short-lived due to market fluctuations.
3.8. What defences are available to allegations that a firm is abusing its dominance or market power?
The only statutorily available defence to an abuse-of-dominance allegation is the ‘meet the competition’ defence. This allows dominant firms to defend claims of discriminatory prices or conditions imposed by them to meet competition (e.g., conduct adopted in response to the competitors’ conduct). This defence was successfully applied in a case involving allegations of price predation against a port service provider for allowing rebates to shipping lines, inter alia, because the discount was justified in view of stiff competition from competing port operators (Dhruv Suri). In another case, the CCI acknowledged that an alleged imposition of unfair or discriminatory prices and conditions will not be considered illegal if it is adopted to meet the competition (Ministry of Agriculture and Farmers Welfare and Ors. v. Mahyco Monsanto Biotech (India) Ltd. and Ors.).
Apart from this, dominant firms have also successfully defended allegations of abuse by objectively justifying their conduct on the basis of objective justifications or necessities. In fact, the decisional practice of the appellate tribunal suggests that the CCI is required to consider the commercial rationale offered by firms before finding conduct to be unfair (India Trade Promotion Organisation v. CCI & Ors.). Some of the cases where this defence has been successfully applied include: (a) in the sports sector, the CCI found certain restrictive conditions to be inherent and proportionate to their objectives, and noted that they cannot be condemned on a per se basis unless there is an instance where these are applied in a disproportionate manner; (b) in Faridabad Industries, the CCI held that allegedly restrictive arrangements are necessitated by the extremely inter-dependent and inter-linked nature of the business; and (c) in Gujarat Industries Power Company Ltd. v. GAIL (India) Ltd., the CCI held that alleged abusive practices of imposing ‘take-or-pay’ obligations (which required natural gas customers to pay for all the natural gas booked, despite a difference in actual consumption and booking value) were justified for safeguarding commercial interests.
Additionally, the CCI has laid down the ‘fairness or reasonability test’ for examining ‘unfair’ contract terms in business to business relationships. This requires examining: (i) how the condition affects trading partners of dominant enterprises; and (ii) whether there is any legitimate and objective necessity for the enterprise to impose such condition. (Indian National Shipowners’ Association v. Oil and Natural Gas Corporation Limited (“ONGC“).)
3.9. What is the role of efficiencies in analysing dominant firm behaviour?
Unlike the rules relating to vertical restraints, the abuse-of-dominance provisions of the Act do not statutorily require actual or likely anti-competitive effects to be proven, or efficiencies to be considered, while analysing dominant firms’ conduct. While there have been certain cases that have adopted an object-based approach (e.g., MCX Stock Exchange Ltd. & Ors. v. National Stock Exchange of India Ltd. & Ors., Belaire Owners’ Association v. DLF Ltd. & Ors.), the later decisional practice of the CCI seems to examine anti-competitive effects arising out of dominant firm conduct, and equally, to examine any efficiencies arising out of such conduct.
For example, the CCI has observed that offering rebates in order to derive operational efficiencies and awarding discounts on dealers’ performance are not anti-competitive (see Dhruv Suri, Mondelez). More recent, the CCI endorsed the ‘effects test’ and has also considered objective justifications, when examining allegations of abuse of dominance, in business to business relationships (ONGC).
3.10. Do the governing laws apply to “collective” dominance?
The Act does not recognise the concept of ‘collective’ dominance. The provisions relating to abusive conduct only extend to individual enterprises or groups. On this basis, the CCI has rejected a series of allegations of abuse of ‘collective’ dominance (e.g., Meru Travel Solutions Pvt. Ltd. v. Uber India Systems Pvt. Ltd & Ors. (“Meru“), Fast Track Call Cabs Pvt. Ltd. & Anr. v. ANI Technologies Pvt. Ltd., Arjun v. Viacom 18 & Ors., Dish TV India Ltd. v. Hathway Cable and Datacom Ltd. & Ors.).
3.11. How do the laws in your jurisdiction apply to dominant purchasers?
The Act does not distinguish between dominant purchasers and dominant sellers or suppliers, and the rules applicable to dominant firms apply to both dominant purchasers and dominant sellers. For example, the CCI found Coal India Limited (“CIL“) to be the dominant purchaser in the market for ‘services relating to the collection, preparation and transportation of coal samples’. The CCI dismissed allegations of unfair pre-qualification requirements in tenders floated by CIL for scientific and technical services in the collection, preparation and transport of coal samples, finding that a purchaser’s choice must be sacrosanct in a market economy because it is expected that a consumer would decide what is best for it, unless there exist rare competition concerns where a dominant buyer exercises the option in an anti-competitive manner.
3.12. What counts as abuse of dominance or exclusionary or anticompetitive conduct?
Please see our response to question 3.5.
3.13. What is the role of intellectual property in analysing dominant firm behaviour?
The general prohibition on abuse of dominance under the Act applies equally to IP-related business practices as it would to any other conduct. Statutorily, the carve-out available under the rules relating to vertical restraints (explained in the response to question 2.11) does not extend to unilateral conduct, thereby exposing intellectual property holders to the risk of scrutiny under the abuse-of-dominance provisions. For example, in 2013, the CCI preliminarily found Ericsson to be a dominant player in Standard Essential Patents (“SEPs“) for GSM- and CDMA-compliant mobile phones; and directed the DG to investigate whether Ericsson had abused its dominant position by charging excessive royalties which contradict the FRAND obligations, trying its SEPs with other patents, etc.
Additionally, the Draft Bill proposes to extend the scope of the IPR Exemption (please see our response to question 2.11) to exempt ‘reasonable’ restrictions imposed by holders of intellectual property that are ‘necessary’ to protect their IPR, from abuse of dominance provisions under the Act.
3.14. Do enforcers and/or legal tribunals consider “direct effects” evidence of market power?
To our knowledge, the CCI has not considered ‘direct effects’ evidence of market power.
3.15. How is “platform dominance” assessed in your jurisdiction?
The CCI’s analysis of platform dominance typically follows an analysis of similar economic factors relevant for the CCI’s assessment of dominance (please see our response to question 3.6). Apart from this, the CCI has increasingly relied on network effects and counter-effects of multi-homing in platform markets to examine the dominance of platforms. For example, in a decision involving abuse-of-dominance allegations against Ola (a major cab aggregation platform in India), the CCI considered Ola to be a non-dominant player, despite its high market shares. Although the CCI acknowledged the importance of network effects in establishing dominance, it noted, among other things, that multi-homing by driver partners and customers could constrain the power of platforms to act independently of market forces (Meru). However, while analysing Google’s dominance in the market of online general web search services and online search advertising, the CCI overlooked evidence of user/advertiser multi-homing (constraint exerted by advertisers switching platforms), and instead considered market shares, technical advantages and barriers of entry to assess dominance (Matrimony.com Ltd. v. Google LLC & Ors. (“Google“)).
In 2017, the CCI also refused to investigate WhatsApp’s privacy policies and zero-pricing policies. Although the CCI considered WhatsApp to be a dominant player in the market for instant messaging services using consumer communication apps through smartphones in India, it relied on, inter alia, extensive multi-homing to reach its finding of no contravention (WhatsApp).
The CCI also held that free services qualify for ‘sale’ or ‘purchase’ (essential for the applicability of certain provisions of the Act) where users of such services offer indirect consideration in the form of their attention, or allow the platform to collect their information (Google).
More recently, the CCI assessed platform dominance in the MMT Case. In its preliminary order in the case, the CCI noted that for platforms having multiple sides and serving multiple sets of consumers, the examination of the relevant market and dominance needs to be assessed from of the side of the platform alleging anti-competitive conduct. On this basis, the CCI defined the relevant market as the market for intermediation services for the booking of hotels in India, and held MMT-Go to be dominant in the relevant market based on its market shares relative to its competitors.
Further, while assessing the dominance of OYO in the market for franchising services for budget hotels in India, the CCI noted that competition dynamics arising out of the franchising model were yet to unfold, which hindered a conclusive assessment of the position held by OYO in the relevant market. Additionally, despite having a significant market share, the nascency of franchising as a business model indicated the presence of a large universe of untapped hotels for competitors of OYO to access. Accordingly, the CCI opined that despite holding a significant position in the market, OYO could not be said to be dominant in the abovementioned relevant market (RKG-OYO).
3.16. Are the competition agencies in your jurisdiction doing anything special to try to regulate big tech platforms?
In its E-Commerce Report, the CCI has identified a set of non-binding self regulatory measures to be adopted by platforms, particularly pertaining to goods, online travel agencies and food delivery. These include: (i) setting out clearly and coherently applicable terms and conditions adopted for search ranking, including the possibility of ranking being influenced by remuneration; (ii) data collection policies, including where such data may be shared with third parties; (iii) transparency in collecting and publishing user reviews and rating mechanisms; (iv) implementing business terms in a clear and fair manner, including notifying business users of proposed changes with sufficient notice; and (v) implementing clear and transparent discount policies involving the basis for discount rates for different products/suppliers and the implications for non-participation in discount schemes.
In addition, the Draft Bill proposes to: (i) introduce additional merger notification thresholds to enable it to review transactions, including in digital markets, that presently may escape notification on account of low asset or turnover jurisdictional thresholds; and (ii) include ‘hub-and-spoke’ arrangements specifically within the definition of ‘cartels’ under the Act. Presently, the Act enables the CCI to specifically sanction anti-competitive vertical and horizontal agreements. The proposed amendments seek to expand the scope of CCI’s review enforcement to include ‘agreements’ that may not qualify as either horizontal or vertical. These proposed amendments are consistent with the recommendations of the Competition Law Review Committee (“CLRC“), which was constituted to recommend amendments to the provisions of the Act.
3.17. Under what circumstances are refusals to deal considered anticompetitive?
Claims of refusal to deal are addressed by the Act’s provision relating to vertical restraints. Refusal to deal refers to an agreement which restricts, or is likely to restrict, by any method, the person or persons from or to whom goods are bought and sold; it is prohibited if it causes, or is likely to cause, an AAEC in India.
Claims of a similar nature against dominant firms could be examined as ‘denial of market access’. The CCI has acknowledged that unlawful denial of market access requires satisfaction of the following elements: (a) there should be an indulgence in a practice of denial of market access by a dominant firm; and (b) the conduct should have resulted in a denial of market access, i.e., anti-competitive effect or distortion in the market in which denial has taken place (XYZ v. REC Power Distribution Company Limited).
The SCI recently clarified that denial of market access need not necessarily be limited to foreclosure of competitors (and, implicitly, could also be in vertically related markets) (CCI v. Fastway Transmission Pvt. Ltd and Ors.).
In its recent decision directing an investigation into an alleged abuse of dominance by GMR Hyderabad International Airport Limited, the CCI has noted that refusal to deal would be considered as anti-competitive abuse of dominance where: (i) the refused input is indispensable for an entity in order to compete in the downstream market; (ii) refusal shall most likely eliminate competition in the downstream market; and (iii) refusal shall most likely damage consumers. (Air Works India (Engineering) Private Limited v. GMR Hyderabad International Airport Limited & Anr.)
4.1. Please describe and comment on anything unique to your jurisdiction (or not covered above) with regard to vertical agreements and dominant firms.
As mentioned in our response to question 1.6, in March 2020, the Ministry of Corporate Affairs invited public comments on the Draft Bill. The Draft Bill has proposed certain amendments to the Act including:
> Introduction of supply side substitutability in the definition of RePM: In addition to the existing demand side substitutability factors, the Draft Bill includes factors of supply-side (i.e. switching costs) substitutability in the RePM definition. This is in line with international jurisprudence which recognises supply-side substitutability while defining the relevant market.
> Expanding the scope of vertical restraints to explicitly include restrictions in agreements that are not entered into between persons or entities at different stages of the production chain. This is in line with the observations of the CLRC that there may be difficulty in categorising certain kinds of conduct or agreements that do not squarely fit within the scope of the Act. Such difficulty was in fact faced by the CCI in Ramakant Kini v. Dr. L.H. Hiranandani Hospital where parties argued that a hospital and a stem cell bank are neither horizontally nor vertically related, and hence the referral agreement between them cannot be examined by the CCI.
> Extending the IPR defence to abuse of dominance: The rights of IPR holders to restrain infringement of or impose reasonable conditions necessary to protect their IPR rights are proposed to be exempt from provisions of the Act that proscribe abuse of dominance, in addition to the pre-existing exemption from the scope of anti-competitive agreements.
Further, as mentioned in the response to question 1.6, the Draft Bill also proposes mechanisms for settlements and commitments for voluntary resolution in relation to vertical restraints and abuse of dominance.
The authors would like to thank Akshat Kulshrestha for his contribution to the writing of this chapter. Akshat is a senior associate in the competition law team at AZB Partners, Delhi.
Hemangini Dadwal, Partner
Atish Ghoshal, Associate