Category: Competition Law

BY MADHULIKA IYER, FOURTH-YEAR STUDENT AT SYMBIOSIS LAW SCHOOL, PUNE

Introduction

Owing to the economic uncertainty due to the ongoing COVID-19 pandemic, many businesses are in search of potential avenues to wither this impact – one of which is the “failing firm” defence (‘FFD’).  The FFD is employed by businesses in cases where their transactions raise anticompetitive issues. The acquirer argues that this transaction, if approved, is unlikely to have an appreciable adverse effect on competition (‘AAEC’), as the target firm would invariably exit the market, if the transaction remains unsuccessful. Hence, the rationale behind this defence is such that the firm’s dominant position will not be strengthened, instead the post-merger performance would aid in maintaining competition in the relevant market.

As widely documented, the effects of the COVID-19 pandemic on the financial stability of various businesses has been almost disastrous. Therefore, this post seeks to analyse that whether the ongoing pandemic (or any financial crisis) affects the assessment of the FFD, the pro-active role of the Competition Commission of India (“CCI”), and its viability post this outbreak as well.

What is the Failing Firm Defence?

First explored in the case of Kali und Saz (now reflected in the European Union’s Merger Guidelines), this defence lays down a 3-point test, which is as follows –

• The failing firm must be on the verge of exiting the market,
• There is no less anti-competitive alternative, and
• In the absence of this merger, the failing firm would invariably exit the market.

Once these 3 conditions are established, it could be stated that there would be no reduction in competition, and therefore, the proposed combination should be approved. A similar test is applicable in the United States (US) as under Section 11 of its 2010 Horizontal Merger Guidelines.

The Indian Competition Law recognises this concept as well. Section 20(4)(k) of the Competition Act, 2002 (“Competition Act”) recognises the ‘possibility of a failing business‘ as a factor in regulating combinations. The S.V.S. Raghavan Committee Report, also commented that no social welfare loss would occur if the assets of the failing business were to be taken over or combined with another firm. Hence, while it is not regarded as an absolute defence under the law, the CCI considers it as a factor while determining whether the combination would have an AAEC or not.

It is also pertinent to note that this defence is still in a nuanced stage in India, as factors such as what constitutes a failing business, or how the CCI should evaluate this defence remain unclarified.

Implications on the assessment of the FFD due to the pandemic or any financial crisis

While answering the question regarding the implications on the assessment of this defence, due to the ongoing pandemic or any financial crisis, it is relevant to highlight the EU’s Olympic/Aegean Airlines case, wherein a merger cited this defence during the 2007-08 worldwide financial crisis. The party’s defence was initially rejected by the Commission, as the conditions of the test were not fulfilled, nor was there satisfactory evidence to establish actual bankruptcy or that the firm would actually exit the market. The Commission observed that temporary losses were a common feature in a financial crisis, which did not warrant any inference that the firm was “failing” per se.

Notably, the Commission approved the same transaction filed in Aegean/Olympic II two years later, owing to the dismal state of the Greek economy, and its finding that the merger posed no negative impact on competition, or that the firm would exit the market upon failure of the same. With reference to the ongoing pandemic, the Commission has published a ‘Guidance Note’, whereby firms first have to avail assistance, in the manner prescribed, before approaching the Commission. Such form of assistance includes existing instruments deployed from the EU budget in order to support the hard-hit SMEs and small mid-caps, as well as credit holidays, which allow for delayed repayment of loans – which will also be implemented for affected companies under the same instruments, in order to relieve the strain on their finances.

The American stance is even more stringent, whereby firms have a higher burden of establishing bankruptcy, due to the presence of both the “failing” and “flailing” firm defence. The latter indicates those firms who have been weakened, merely due to market competition. During times of financial crisis as well, the standards of this defence have never been compromised upon by the US Justice Department. With respect to the ongoing pandemic, American authorities have called for expedited review of failing firms, whereby parties have a timeline within which they can base their transaction upon, providing clarity to their overall business functioning as well.

The takeover of Bhushan Steel by Tata Steel, shows India’s accepting stance on the FFD. The CCI has approved, without any objection, almost-all mergers, which have significantly increased since the establishment of the Insolvency and Bankruptcy Code, 2016 (“IBC”) as well. Despite their pro-active approach as highlighted above, it is interesting to note that the Advisory issued by the CCI, is void of any specific merger mention, and contains only a general warning for businesses to refrain from violating any provisions under the Competition Act. As stated above, there is also no clarity regarding the FFD, nor has it been provided during the ongoing pandemic either.

The threshold the CCI should establish for the FFD and its importance post COVID-19

It is common knowledge that India is facing an economic slowdown, with the GDP at a decline of 23.9%. Owing to the same, the CCI is faced with an issue of balancing market competition, while also saving essential failing businesses. Another point to note is the suspension of the application of IBC for a year, due to which any combination approaching the CCI during this period, will not go through the rigour of IBC to adduce its bankruptcy, and whether it truly is failing. Hence, the burden of this determination rests solely upon the CCI at this point in time. I believe it is the need of the hour to put forth regulations de-marking the criteria for utilising the FFD in India. The factors the Commission should keep in mind while establishing the same are as follows –

1. Parties to the proposed combination should be given the chance to put forth their case, with factors such as proof of the possibility of exiting the market upon failure of this combination, proof of no AAEC by demonstrating their nearly bankrupt state or evidence of alternative negotiations with other potential buyers as well. All in all, the factors as considered under the Olympic/Aegean case, would in my opinion provide a holistic approach to the CCI while trying to adduce the true intentions of the parties. With reference to this point, the Canadian Merger Enforcement Guidelines , which suggest that parties can rely on projected cash flows, audited financial statements and proof of continuing operating losses to prove the FFD could also be taken into account. By looking into the same, it can be proved by the parties that the firm truly is failing and is likely to exit the market. Emphasis can also be placed upon other information such as financial analysis memorandums, minutes of the board meetings or even documented negotiations which have taken place with other competitors, in order to prove that there is no less-competitive alternative to the proposed combination and also that the firm is incapable of being reorganised.  
2. Secondly, factors such as accessibility, price, and cost should be given greater consideration, especially during any financial crisis, as they have higher relevance to consumers as well. Demonstrating the same, during the analysis of the FFD in the minority stake acquisition of Deliveroo ( a food delivery start-up) by Amazon, the Competition and Market’s Authority   in the United Kingdom, adduced  that loss of the food delivery application would have a negative effect on consumers, owing to the possibility of higher prices along with a decrease in quality and choice.
3. Following the steps of the United States, with respect to their differentiation on “failing” and “flailing”, as highlighted above could also be beneficial to our country. It is evident that the service industry, from airline companies, to the hospitality sector and tourism have bourn the brunt of the pandemic to a greater extent. Hence, adopting different standards or thresholds based on industry-specific impact will also, to some extent, prevent the decline of these industries, and uphold their overall welfare and business functions. One can also seek guidance from the South Korean Free Trade Commission, wherein they adopted a similar approach with respect to the relaxation of merger guidelines, in order to assist their aviation sector.
4. Lastly, keeping in mind the lack of clarity regarding the FFD and its interpretation in India currently, potential parties could also opt for a pre-consultation with the CCI, in order to clear any ambiguity present in their proposed transaction and its interpretation. Another possibility would be adopting the Green Channel mechanism, specifically for COVID-19 mergers, and transactions citing the FFD as well, under regulation 5A. This possibility was also recommended by the Competition Law Review Committee, although not adopted. There are often circumstances wherein the competition in the market could be best secured by authorising a deal that allows for the assets of the failing firm to remain in the market, in the absence of which the market share of the failing firm will be taken over by the present competitors, and in any event would have an effect on the competitive constraints. Following the basis of this argument, there is no reason to set-back the approval of a combination, involving the acquisition of the failing firm, once the resolution plan has been approved. While some may argue that this possibility would serve as an additional burden on the CCI, I truly believe this mechanism outweighs the inefficiencies present.

Conclusion

At this time, while it is crucial to exercise caution in order to prevent any problematic mergers which may have an AAEC, it is also pertinent to protect businesses which truly are financially distressed and whose exit would impact or cause adverse market reactions. The FFD is one of the potential avenue’s businesses are venturing into, especially during the current economic slowdown. However, the lack of any legislative framework or clarity proves to be a drawback.  Hence, the pro-active role of the CCI in this matter is the need of the hour, in order to provide and maintain a balance between market competition and the considerations for the FFD in merger proposals, as well as its impact and precedence post the pandemic as well.

BY SWIKRUTI MOHANTY AND TUSHAR CHITLANGIA, SECOND YEAR STUDENTS AT NLU, ODISHA

Introduction

The long wait of WhatsApp to enter into the Unified Payment Interface (‘UPI’) enabled digital market in India has finally come to an end. In an order dated 18 August 2020 in Harshita Chawla v WhatsApp, the Competition Commission of India (‘Commission’) has allowed WhatsApp to launch its payment service termed WhatsApp Pay. Additionally, National Payment Corporation of India has also assented to WhatsApp Pay’s data localisation compliance and gave permission for it to go live. WhatsApp Pay is a UPI based payment service and will undoubtedly come out to be a massive winner in the digital payments market as WhatsApp already has the largest user base in India with 400 active million users; hence attracting users will not be a problem. However, this may lead to WhatsApp abusing its dominant position, which the post discusses further. The post also discusses why Big Data, which WhatsApp can abuse after the launch of WhatsApp Pay, should come under the Commission’s ambit. The post also lays down the ways which the Commission can consider to bring Big Data under its jurisdiction to prevent possible problems.

Issues Raised and the Judgement

In the instant case, Harshita Chawla, the informant, has alleged that WhatsApp is taking the leverage of its predominance in one market (market of OTT messaging apps through smartphones) to enter into another market (UPI enabled digital market) by authorising pre-instalment of WhatsApp Pay on WhatsApp, and bundling WhatsApp with WhatsApp Pay. Therefore, she contended that WhatsApp is abusing its dominant position under section4(2)(d), and 4(2)(e) of the Competition Act, 2002 (‘the Act’). She also pointed out that UPI enabled digital payment apps dealt with  Big Data which are essentially vast chunks of personal data which have characteristics like that of high volume, variety, value, and velocity and are available to corporations, which use it for targeted advertising.. With a given volume of such data, WhatsApp might adversely affect the integrity of personal data and national security in the future. Hence, Harshita Chawla prayed for the cease and desist order of the anti-competitive operations.

Despite the acknowledgement of WhatsApp’s dominance in the market of over-the-top  (‘OTT’) messaging Apps through smartphones in India, the Commission was of the view that pre-instalment of WhatsApp Pay did not appear to be in contravention of section 4(2)(d) and 4(2)(e). Users will still have a choice to utilise any other UPI based apps which might be already downloaded on their smartphones, and there will be no express or implied encumbrance which can take away this liberty. Further, the Commission added that UPI enabled digital market is already established with eminent players competing enthusiastically, and it appeared improbable that WhatsApp Pay will consequently claim a more vital position only on account of its pre-installation. The Commission also noticed that WhatsApp which managed Big Data was prone to abuse and it can raise a potential anti-trust concern. However, the Commission held that it could not examine the matter of misuse of sensitive due to lack of concrete evidence. Hence, the Commission ordered the closing of the case under section 26(2) of the Act as it found no prima facie case arising from the issues raised by Harshita Chawla.

Critical Analysis

Abuse of Dominant Position by WhatsApp

The Commission examined the matter of tying under section 4(2) (d) in detail. It laid down four conditions which have to be satisfied to determine a case of tying. The first two conditions were met, as WhatsApp and WhatsApp Pay were separate products, and WhatsApp was dominant in the market for tying product. However, the Commission opined that the last two conditions, namely: iii) a complete restriction to only obtain a tying product without tied product, and iv) tying capable of hampering the competition in the market, was not met by WhatsApp. On the contrary, authors opine that last two conditions were also met as WhatsApp Pay feature came embedded with the WhatsApp and thus essentially the tying product (WhatsApp) cannot be obtained without tied product (WhatsApp Pay). The last condition is also met as WhatsApp Pay is capable of hampering the competition in relevant market due to huge existing user base of WhatsApp. The Commission refuted the fourth condition on the basis of it being premature but instead the Commission could have taken Dynamic Analysis approach in which future outcomes are predicted using the real time data.

The Commission further observed that the mere existence of an app on the phone does not necessarily guarantee the usage and hence the allegation cannot be scrutinised under the purview of section 4(e) However, the Commission possibly ignored the fact that if WhatsApp introduces its own UPI app, it does have an undue advantage since the user base of WhatsApp is practically being served on a silver platter to the upcoming app. Therefore, WhatsApp can use its dominant position in one market to enter into another and thus contravening section 4(2) (d).

Further, the Commission held in Re Biocon Limited v Hoffmann-La Roche AG that even a partial denial of the market access, which deprives the competitors to compete effectively violates section 4 of the Act. The fact that these third-party payment apps have meagre margin and the prime factor for these apps to sustain in the market is to keep their users engaged through different tactics cannot possibly be taken out of consideration. In this manner, user-base shapes one of the major facets of driving competition among all market players.

Additionally, the Commission was of the view that in the UPI enabled digital market, the competitors compete enthusiastically, and in such a scenario, it is difficult that WhatsApp will amass a market share solely owing to its pre-installation and a dominant position. However, in the case of Shri Vinod Kumar Gupta v. WhatsApp Inc. & Ors., the Commission observed that even if an app held a dominant position in the relevant market, once a new alternative app is installed on a device, users can quickly switch to the alternative app. In the instant case, WhatsApp Pay is the new alternative and pre-existing players like Google Pay, and Phone Pe are in the dominant position, the chances of WhatsApp taking over these apps within a short period does not seem all that improbable provided its gigantic existing user base of. Hence, WhatsApp can abuse its dominant position with the launch of WhatsApp Pay.

Additionally, it is worth mentioning that South Africa Reserve Bank (‘SARB’), the Central Bank of South Africa, also suspended digital payment operations of WhatsApp shortly after it started in South Africa to “preserve an adequate competitive environment”.

Big Data Conundrum

The Commission once again got a chance to analyse the anti-trust concerns surrounding Big Data in the instant case, long after an unsuccessful stint in Vinod Kumar Gupta v WhatsApp Inc. & Ors. However, yet again, it failed to lay a definitive decision on the same. Big Data is useful to some extent; however, wrongful use of this user data can lead to wiping out of competitions in the market as the choices of the consumers remain only known to the data collecting entity and not to other competitors.

The Commission in the present case has dismissed the possibility of looking into the issues surrounding big data stating  there is no concrete evidence to support the claim by Harshita Chawla. However, it was held in the case of Registrar of Restrictive Trade Agreements v. W. H. Smith and Sons that entities which combine “will not put anything into writing nor even into words” and will only hint in the slightest way possible. This implies that finding concrete data alleging violation of anti-trust rules is difficult. In such cases, The Commission should consider extending its reaches to include any wrongful use of big data as an anti-competitive activity and include it under the realm of its jurisdiction.

To bring Big Data under its jurisdiction in cases of mergers, the Commission may treat Big Data as assets (precisely intangible assets) under section 5 of the Act. Due to this, mergers of kinds which involve Big Data transfers would be under the ambit of the Commission by virtue of section 6 of the Act. Section 6 states that combinations should not cause an appreciable adverse effect (e.g., barriers to entry) in the relevant market.

Another, route which the Commission can take is that it should assign Big Data a relevant market. Relevant market refers to the market where the competition takes place. Defining the relevant market is the initial step of any anti-trust analysis. One of the major issues why big data has not come under the radar of Competition Tribunals around the world is that Big Data could not be assigned a relevant market as online providers use data as an input in their service and not as product being sold to consumers. The European Commission review of the merger of WhatsApp/ Facebook also declined to define the relevant market for Big Data. Some scholarly work suggests that ‘Big Data Relevant Market’ (‘BDRM’) should be the relevant market for Big Data. Companies use data for gaining a competitive advantage and thereby also showing an indication of exclusionary practice. Hence, demarcating a separate market for Big Data would encourage better identification of anti-trust issues like market power, entry barriers, and abuse of dominant position in BDRM.

Concluding Remarks

Although the launch of WhatsApp Pay will be a big rejoice for the users, it comes with a resounding blow to the anti-trust regulations in the country.  In this tech-upgrade saga, the chances are high that consumers would be at a losing end as the market will not have any competitor to provide them with different and innovative services other than WhatsApp. This may also lead to the problems of Big Data usage by WhatsApp as there is no law in India to govern big data and the Commission is yet to acknowledge the misuse of big data as a competition concern.. Also, incidents like that of Pegasus spyware in 2019 adds onto the vulnerabilities of privacy and data security in hands of WhatsApp. Therefore, to prevent such issues, the Commission must include Big Data under its jurisdiction, so that a check can be put on digital mammoths like that of WhatsApp.

BY MOHIT KAR, A fourth-year student At mnlu, aurangabad

On 20^th February, 2020, The Ministry of Corporate Affairs came up with the Draft Competition (Amendment) Bill, 2020 (“the Bill”) on recommendations of the Competition Law Review Committee (“CLRC”). The Bill, amongst other changes, has proposed for addition of Section 4A to widen the scope of protection accorded to Intellectual Property (“IP”) holders in Abuse of Dominance (“AoD”) cases. Section 4A acts as an exception to Section 3 (prohibiting anti-competitive agreements) and Section 4 (cases of AoD) and allows the IP holders the rights to safeguard themselves from infringement and impose reasonable restrictions to protect their rights under existing IP statutes. It is pertinent to note that a similar provision is already in existence in the form Section 3(5) of the Competition Act and the new section merely adds the protection to the AoD cases.

Intersection of Abuse of Dominant Position and protection of Intellectual Property: Jurisprudence in India

The Bombay High Court in the case of Aamir Khan Productions Pvt Ltd v Union of India held that the Competition Commission of India (“CCI”) had the jurisdiction to hear competition cases involving IPR. Subsequent to that decision, the CCI has dealt with a multiple of cases involving competition law and intellectual property. Most of the cases deal with the ‘refusal to license’ issue. In the case of Shri SamsherKataria v. Honda Siel Cars &Ors, the CCI held that the refusal to license the diagnostic tools and spare parts essential in the manufacturing of automobiles constituted an abuse of dominant position. This was the first case CCI took a significant look at the potentialities of competition abuse with the help of IP rights.

In the case of Justickets Pvt. Ltd v. BigTree Internet Pvt. Ltd. & Another, CCI took a cautious approach while dealing with a delayed licensing conundrum. Justickets, an online movie ticket booking website, had alleged that BigTree, another online movie ticket booking portal, along with Vista Entertainment were misusing their dominant position by denying access to Vista’s Application Programming Interface (“API”) whose access was essential for ticket booking portals to smoothly transfer data from their website to Vista screens at theaters. After the DG investigation, CCI found that, although delayed, the access to the API was duly given by BigTree and Vista. CCI held that the delay in licensing was justified and as every business entity has a right to protect itself against threats of reverse engineering and protect its business interest, especially IPR before committing to licensing deals. In quite contrary to its position in the Samsher Kataria case, the CCI took the side of the IP holder in the present case and it was rightfully so. A mere delay in allowing a license cannot be considered as AoD since every party has a right to perform a due diligence and take the stock of the situation before entering into any licensing agreement with the other party.

A key conflict between IP rights and competition law lies in the licensing of Standard Essential Patents (“SEP”). In the case of Telefonaktiebolaget LM Ericsson (PUBL) v. Intex Technologies (India) Ltd, the Delhi High Court while deciding about this conflict laid down certain guidelines for the holders of SEPs and the potential licensees to abide by so as to avoid AoD. This intricate balance between the SEP holder and licensees also exists in the EU to create an equilibrium between the rights of a holder of a patent that is essential for a standard and ensuring that said right does not allow it to hold a dominant position in the market.

Analysis of Section 4A from an EU perspective

As mentioned before, the added protection provided to IP holders that has been suggested by the Bill is not all together new and was previously in existing Section 3(5) of the Competition Act. The proposed section 4A merely extends the protection to cases of AoD under Section 4. Although the provision seems like a blanket protection to IP holders, a key aspect of it lies in the wordings of “reasonable conditions”. It states that the IP holders can make use of their rights under certain restrictions to ensure fair play and promote competition. The CLRC while drafting the provision have stated that the provision should be interpreted in a narrow sense so as to bring it in line with international jurisprudence.

AoD in the EU is regulated under the Article 102 of the Treaty on the Functioning of the European Union (“TFEU”) which states that: “Any abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States”. The EU courts have faced a number of cases on the question of whether use of intellectual property to facilitate market exploitation results in violation of Article 102. In the cases of AB Volvo v Erik Veng (UK) Ltd. and CICRA & Another v. Renault with regards to design rights of automobile parts, the European Court of Justice (“ECJ”) held that refusal to license the design rights could not amount to AoD as it was part of the exclusivity given by IP rights. Further in the case of Parke, Davis and Co. v. Probel, Reese, Beintema-Interpharm and Centrafarmthe ECJ had maintained that use of IPR to gain foothold in a market does not necessarily amount to AoD as there may be a significant amount of substitutes available in the market. However, the ECJ changed its stance moving forward, evidenced in the cases of Radio Telefis Eireann (RTE) & Independent Television Publications Ltd. (ITP)v. Commission and IMS Health GmbH & Co. OHG v. NDC Health GmbH & Co. KG wherein it held that a refusal to license IP rights would constitute AoD only in “exceptional circumstances”. It laid down the exceptional circumstances in a “narrow” sense as: (a) the IP is a necessity to compete in the market; (b) the refusal is no objective justification; (c) the refusal would hand over a secondary market to the IP owner without any competition; (d) the licensee offers to produce such products which is not in the inventory of the IP holder. In a different case involving Microsoft, the European Commission took a different stand and stated that licensing could be made compulsory under the following circumstances: (a) the IP right is a necessity for the competitor to stay viable in the market; (b) the refusal to license would reduce disclosures; (c) there exists a “risk” of elimination of competition in the secondary market; (d) the refusal to supply could end up stifling innovation; (e) the refusal to supply would not be objectively justified as it could lead a lack of balance between the incentives to innovation for the IP holders and the incentives to innovate for the market as a whole. This interpretation in the Microsoft case was very broad. It mandated access to licenses very strictly and led to situations where in the courts would find refusal to license as abusive when in fact they were not.  Such a strict interpretation reduced consumer welfare and led to an overall lack of social welfare.

Given the similarities between Section 4A, the CLRC recommendations and the aforementioned constructions laid down by the ECJ, it is expected that CCI is expected to refer to ECJ cases whenever it is faced with questions related to Section 4A. It would prove beneficial if CCI follows a similar route of the “narrow” construction while dealing with the issue. The CCI would also need to take a similar path when dealing with the SEP licensing cases so as to ensure that the SEP holders do not stifle competition while ensuring that they get the necessary freedom to enforce their IP rights.

Conclusion

The provision of Section 4A is a very adventurous step that has been recommended by the CRLC, given it’s a road not taken by other jurisdictions. It does come with certain flaws as it may lead to lengthy implementations and trials. But on an overall basis, it is quite positive and a move worth welcoming, as it could bring some much-needed clarity to the “conditions” under which the dominant IP holder can enforce its rights. It could also nudge CCI to refer much-appreciated interpretation made by ECJ in its narrow construction with regards to refusal to license cases and could bring about larger welfare for the society.

BY ANURAG MOHAN BHATNAGAR AND AMIYA UPADHYAY, THIRD-YEAR STUDENTS AT NLU, ODISHA

Introduction

With a vision to impede unjust trade practices in the e-commerce industry, immediate selling, and to safeguard the interest and the rights of the consumers, the Central Government has come up with Consumer Protection (E-commerce) Rules, 2020 (‘the Rules’). The Central Government has the authority to take certain actions to avert unfair trade practices in the e-commerce industry as under section 94 of the Consumer Protection Act 2019 (‘the Act’). The rules concerned, have been worked out as under the powers provided in section 101 (1) (zg) of the Act. One of the basic definitions that have come up under the new rules, include “e-commerce entity” that is, “any person who owns, operates or manages digital or electronic facility or platform for electronic commerce, but does not include a seller offering his goods or services for sale on a marketplace e-commerce entity”.

Furthermore, the Central Government has also replaced a three-decade-old (1986) act with a new Consumer Protection Act 2019 which came into effect in July 2020. The present piece seeks to present a detailed analysis of the Rules including certain loopholes within the same, and the similarities or differences between competition laws (antitrust laws) and consumer protection laws. Further, the authors have also formulated a cross-jurisdictional analysis with USA and the European Union (EU).

Critical Analysis

The replaced Act lacked the vision to provide justice to the consumers and was time-consuming. As per the new Rules, the seller has to mandatorily show details such as price, information about refund/exchange, delivery, and shipment, grievance redressal, etc. The Rules also mention that the sellers cannot make unjustified profits by manipulating the price of the goods (rule 4(11) (a)).In the case of M/S Cargo Tarpaulin Industries vs Sri Mallikarjun B.Kori, the National Consumer Disputes Redressal Commission held that it is an offence to sell any good at a price higher than the current retail price of that good.

While, the report given by the Competition Commission of India (‘market study’) covered most of the difficulties faced by the consumers, it only comprised of objective facts with the end goal of research and did not establish an authoritative or a binding legal obligation. On the other hand, these rules not only legally bind the e-commerce platforms but also deal with major issues present in the market study such as platform neutrality and search rankings (rule 5 (3)(f)). Regulatory authorities have been strict about search rankings ever since they found Google liable in Matrimony.com Ltd v. Google LLC and Ors.

Platform neutrality means that e-commerce platforms cannot discriminate in favour of their services. For instance, Flipkart could not favour its products in the search rankings on its marketplace while demoting the other retailers on the platform. Thus, a platform cannot act as both a marketplace and a competitor on that marketplace. In Re: All India Online Vendors Association, Flipkart was alleged for leveraging its position as a marketplace to extend preferential treatment to WS Retail on its platform. Preferential treatment is accorded by numerous e-commerce players in India by marketing and selling products of their own subsidiaries, related parties or others. By doing so, the undertaking imposes dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at competitive disadvantage. Under rule 5(3), marketplace e-commerce entities are required to disclose any differentiated treatment which it is / maybe extending to goods, services or sellers of the same category. As such, the e-commerce platforms will need to disclose descriptions of practices like premium/preferred listing, skewed search results, sponsored deals etc. in the terms and conditions governing the relationship with the sellers on the platform. This will help in curbing such discriminatory profit-making practices.

Further, the Act aims to establish a Central Consumer Protection Authority (‘CAPA’), Disputes Redressal Commission, Central Consumer Protection Council. These bodies shall carry out investigations in certain matters about misleading advertisements, product liability, and unfair trade practices.

The Rules have also mapped out a grievance redressal system for complaints. Under the Rules, grievance is classified as any complaint with respect to violations of the Act or the Rules, made to any e-commerce entity. The Rules have made it essential for every e-commerce entity to appoint a nodal grievance officer, whose designation and contact information has to be displayed on its website. Further, it is essential for every e-commerce entity to certify that the appointed officer acknowledges the receipt of the complaint in 48 hours and furnish rectification of the same within 1 month from the receipt date. From the perspective of a consumer, the clause of “acknowledging the receipt” of the complaint will act as improving the transparency in the redressal system and obviously, a time-bound dispute redressal system will qualify as a righteous move.

Inter alia, other relevant duties of the e-commerce platforms include non-imposition of cancellation charges, explicit consent of consumers and effective refunding. According to the clauses under rule 7, e-commerce entities will not impose cancellation charges on consumers who cancel after confirming the purchase, unless the e-commerce entity is also bearing similar charges. Furthermore, the consent acquired from the customer while purchasing must be express and voluntary. In this way, the e-commerce entities will not under any conditions include pre-ticked boxes in consent forms. In addition, products and services will be taken back and refunds shall be given if there is an occurrence of defective, inadequate or bogus and counterfeit, or not at standard with or not of the characteristics advertised or when delivered late from the schedule, except if brought about by force majeure.

Relationship between Antitrust and Consumer Protection: Under One Umbrella

Prima facie, the objectives of both the legislations are quite similar as both deal contortions in the market place, which is driven by supply and demand. While the Competition Law ensures access to goods and services at competitive prices for consumers and averts illicit activities which could hamper an environment of healthy competition, Consumer Protection on the other hand, aims to safeguard the basic right of the consumers to be guaranteed access to diverse goods and services at competitive prices.

The relation between both the laws can be expressly witnessed in the Competition Act itself, as under section 4, “where an enterprise or a group shall be termed as abusing its dominant position if it limits technical development relating to goods or services to the prejudice of consumers”. A similar reference can also be seen in section 18 of the Competition Act whereby the “interest of consumers must be protected”. Thus, it can be reasonably argued that both the legislations ultimately support one another as two parts of an overarching unity, and that overarching unity is consumer sovereignty.

Loopholes and Criticism of the Rules

Rule 2 states that the Rules does not apply to a natural person where the activities are being carried out in personal capacity. The Rules should have included all the stakeholders within its purview to be qualified as an extensive piece of legislation. Secondly, the Rules could have mapped out a detailed rate list of the delivery charges, which the sellers charge on the e-market, which are often unnecessarily higher than what a common man would be willing to fork out. Thirdly, the malpractice of drip pricing has not been addressed. Drip pricing is an act where the seller consistently increases the price of the goods at different stages of online shopping till the final stage of payment. Lastly, the rules have surprisingly not included any legal structure other than a company, such as a limited liability partnership (‘LLP‘). This preclusion would definitely hamper many e-commerce entities which are functioning under different legal structure.

Furthermore, there are certain terms in the Rules which might create confusion or conflict such as “unjustified prices”, “arbitrary classification” and “unreasonable profits”. Arguably, clauses like “restricting access to sale/discounts on products/services” can be termed as arbitrary categorization since they affect the rights of consumers directly.

Cross-Jurisdictional Analysis

Before the Indian Ministry of Consumer Affairs, market research and examinations on the impact of digital marketplaces have similarly been carried out by consumer protection and competition law watchdogs of many other jurisdictions. Some of the noteworthy regulations introduced in other jurisdictions are as follows:

USA: The two agencies involved in online consumer protection in the US are the Federal Trades Commission (‘FTC’) and the Federal Communications Commission (‘FCC’). While the FCC reviews consumer complaints, the FTC investigates and takes actions against those involved in illicit trade practices. Previously, the FTC had released a dotcom disclosure guidance document in which it mentions that how intently it manages the structure and substance of information distributed in the online marketplace to prevent unreasonable or deceptive activities and protect the consumers from such practices. In any case, while the sectoral division of regulators may provide cures for that specific sector, it isn’t without its disadvantages, lack of co-operation between the regulators and overlapping decisions of authorities, just to name a few.

EU: The EU introduced new rules for consumer protection in January 2020. This initiative adopted by the commission urges more transparency on e-commerce marketplaces, same consumer rights for “free digital services”, better search rankings, transparency in customer reviews, customized pricing.  It also focuses on forbidding purchasing of tickets online through bots and encouraging honest discount claims. The directive also mentions levying penalties on those e-commerce platforms which violate these consumer rules, which is up to 4 percent of the platform’s overall turnover.

Conclusion

In an industry that is going through a phase of expansion and technological advancement, robust legislation such as the Act was the need of the hour. Certainly, the Rules can be considered as a step in the right direction. Even though some of the provisions of the Rules might be in contravention to the sellers but overall, these rules were needed because until now, there was no particular legislation that dealt with unconventional issues resulting from the e-commerce industry. Lastly, these Rules cover all the contemporary issues and act as much-awaited legislation governing the new e-commerce industry and shall aim to let out some uniformity in the market.

By Priyashi Chhajer, fourth-year student at NLU, Jodhpur

The concept of control has been laid down in various statutes and defined differently as per their requirements. Competition Act, 2002 (‘Act’), Companies Act, 2013, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, Foreign Direct Investment policy are a few examples. ‘Control’ is defined in explanation of section 5 of Act, which reads as “Controlling the affairs or management by one or more ‘enterprises’ or ‘groups’, either jointly or singly, over another enterprise or group.” Acquiring control of enterprise may lead to appreciable adverse effect on competition and is therefore required to be notified to the Competition Commission of India (‘CCI’).

An uncertain and wide definition was adopted in the Act as the legislature intended to determine acquisition of control on factual basis. However, because of an absence of clear and specific guidelines the scheme of control continues to be ambiguous. The uncertain boundaries of control have also led to inconsistency in interpretation resulting in improper imposition of penalties.

Recently Ministry of Corporate Affairs introduced Draft Competition (Amendment) Bill, 2020 in February wherein; material influence over the affairs of business and management has been proposed as a standard to determine control. This test on one hand will put large number of transactions under scrutiny and help in monitoring competition in market; but at the same time it will give excessive power to CCI thereby hampering the ease of doing business.

Ambit of Control – Asymmetrical Interpretation Leading to Confusion

As a matter of practise, CCI  has attempted to assess control by the yardstick of “decisive influence” over the affairs of another enterprise or group by way majority shareholding, veto rights or contractual agreements. However, these boundaries have diluted over the period of time.

In Multi Screen Media Private Limited Case,  veto rights over strategic commercial decisions were exercised. CCI in this order extended the ambit of control to  not only proactive rights but also negative and affirmative rights. In subsequent RB Mediasoft/ IMT order, mere right to convert zero coupon optionally convertible debentures into equity share,  was  considered as control. Threshold was further lowered in case of Jet- Eithad, where  Eithad acquired 24% stake without any veto or quorum rights, along with the right to appoint 2 out of 12 directors.  CCI took into account  Eithad’s ability to control the managerial affairs of business and considered the transaction as acquisition of control.

Later on, CCI started shifting the threshold towards material influence for determining ability to exercise control. In Argium Inc. and Potash Corporation of Saskatchewan, Inc., it was observed that although Potash Corp. held 14% interest, it still had the capacity to control the affairs as it was leading in production in global market and thus might exercise influence.

In the recent  Ultratech/Jaiprakash Order , CCI defined material influence as “the lowest level of control, implies presence of factors which give an enterprise ability to influence affairs and management of the other enterprise including factors such as shareholding, special rights, status and expertise of an enterprise or person, Board representation, structural/financial arrangements etc.” CCI expanded the ambit of control to include material influence and not just de facto and de jure control (acquiring more than 50% of voting rights by way of shareholding).

Later in 2018,  this expansive threshold was reiterated in Meru Travel Solutions vs. ANI Technologies and Ors, where CCI ruled that Softbank has ability to exercise  material influence even though it is a minority shareholder in Ola and Uber. Therefore, even the acquisition of  minority shareholding, for investment purposes may attract section 5 and section 6 under competition Act.

The scope of  policies is left wide and inclusive, so as for the CCI to interpret it in a manner favouring competition law objectives. The strict definition may impede promotion of social and economic cause. However, inconsistent factual determination of control by regulatory body has clearly lead to dysfunctionality, as it has breed vagueness for business entities and lack of clear legislative guidance has vested excessive discretionary power with CCI.  

Complexities  that are Propagated by “Material Influence” Test

Firstly, unavailability of codified guidelines and the open-ended interpretation of ‘control’ adopted by CCI will empower them with unrestricted power to take up suo-moto cognizance of any transaction. For instance, in Jet – Eithad Case where there was acquisition of mere 24% stake without any significant rights; CCI still took the matter into its hands and reviewed the deal. Not only this, disparity amongst different regulators makes compliance unmanageable  for the businesses . As was seen in abovementioned case where affected by the CCI’s orders, SEBI reopened the case and ordered to investigate the matter again.

Secondly, even when there is likeliness of appreciable adverse effect on competition, the transaction needs to be notified in accordance with section 6(2) of Act. Sporadic definition and lack of precedential clarity will result in ambiguity pertaining to determination of transactions that needs to be notified. There have been instances wherein the CCI took 60-90 days to conclude prima facie inquiry, which in turn should be completed in 30 days. Open ended test of control will bring more transactions under review which will lead to delay in execution of  transactions and deterrence in ease of doing business.

Thirdly, expansion of definition of control has also led to expansion of the meaning of ‘group’ under explanation (b) of section 5. In this explanation group is considered to be formed when “two or more enterprises are directly or indirectly in position to control the management or affairs of another business”. The new threshold will affect the applicability of  numerous exemptions available to intra group dealings. Also, it will be difficult to determine horizontal and vertical overlaps during merger filings.

Fourthly, many financial investments and private equity transactions will now come under the review of competition commission as because of the expansive definition the pure minority protection rights can also now be seen as negative control triggering mandatory notifying obligation under section 6 of the Act.

Position of Law in other Jurisdictions

Indian regime is similar to that of the EU. However unlike in India, EU provides detailed guidelines for interpretation of control. Article 3(2) of ‘Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings’ defines control as the ‘possibility of exercising decisive influence on an undertaking’. It implies that one may or may not actually exercise decisive influence but even a slightest possibility of exercising effective decisive influence is ample enough to bring it under the ambit of control. There are no particular thresholds specified to assess when there is change of control. However, European Commission issued a Consolidated Jurisdictional Notice, which acts as a guide and tool for interpretation. It anticipates and provides for all possible instances when merger regulations can be triggered. Possibility of exercising decisive influence can be on the basis of right, assets or contracts, or any other means, either separately or jointly.

In the US, the concept of control is defined in Hart-Scott-Rodino Regulation (‘HSR’). Section 7 of Clyton Act  provides for three tests – the commerce test, the size of transaction test and the size of person test. For the transaction to fall under HSR filing obligation, above tests must be fulfilled. Generally, acquisition of voting rights and assets is looked into to determine change in control.

CCI has failed to remedy the indefiniteness surrounding the concept of control. International organisations such as  OECD endorse global uniformity for the definition of control. Unfortunately, the domestic inconsistency has resulted into cross-border disparities for the understanding of control.

Conclusion

A transaction can be reviewed under section 5 of Act only if there is change in control. Earlier it was decided by way of decisive influence over management or affairs of business by way of majority shareholdings, veto rights and contractual agreements.  By virtue of this threshold those transactions comprising acquisition of non-controlling powers, however having appreciable adverse effect on competition were left unchecked. To alter the situation Competition Law Review Committee, 2019 proposed to lower the threshold of control so as to include those minority shareholdings that can affect competition.

Material Influence test is the lowest threshold of control. As a consequence of this, majority of combination transactions will come under review process. It will increase the load of the CCI with insignificant notifications and will also be onerous for the parties involved in transactions. Moreover, lack of guidance and inconsistency in precedential trail adds to the existing confusion on kinds of transactions that are eligible for notification.

Therefore, there is pressing need to make the market investor friendly for economic growth. Sizable problems posed by the proposed amendment weighs down the benefits that it purports. Cues must be taken from other jurisdictions so as to promote certainty in domestic regime. CCI must tread with caution so that ease of doing business is not affected and market entities do not get caught in clutches of cumbersome notifying process, unforeseen penalties and vagueness.