Business Law

Abuse of Dominance under Competition Law

By Aaron S John

Introduction

India is a developing country and has many industries that are still developing with many Indians being in their early thirties. India is a country that has a very promising future and a lot can be expected from India in the upcoming decade. Keeping this in mind there has been a huge change in the Indian market as many have started thinking outside the box and have come up with their start-ups and unique ideas. These start-ups and ideas lead to competition and it is always said that where there is competition the customers and the market thrive as the sellers will have more commodities to sell and introduce new items and the customers will have choices on what to purchase. But often the dominant company takes charge of the market and tries to manipulate it in such a way to eliminate its competition. Here, the Competition Law of 2002 comes into the picture as it enables the new companies to survive and stops the dominant companies from taking charge and abusing their dominant position. In this article, the dominance of competition law and how certain companies use their dominant powers will be discussed. In these times the use of anti-competitive law is very likely to be tested even more. In the upcoming days as the Indian economy is slowly coming back and recovering from the covid-19 pandemic many new players have emerged and are constantly fighting for the dominant position. It was Amazon in the year 2020 that the Indian competition commission investigated for using its dominant position. But it was finally decided that Amazon had not used its dominant position to kill the competition. Similarly, Google pay of Google had also come under scrutiny for constantly pushing Google Play as the alternative for hard cash.

Since the beginning of the competition act, it has become the main document for the companies to understand what can be considered a dominant and relevant market. Many times, big corporate firms use the reason of innovation and competitiveness to get rid of the liability and their policies of competitiveness but keeping the legal perspective in mind dominance can be understood as the position of strength certain company has due to its experience and brand name over the others and how these companies can easily change the whole market by pushing certain commodities or removing certain commodities from the market. Section 19 clause 4 of the company act talks about the factors that determine whether a company can be considered to be dominant or not.

The Concept

“It must be kept in mind that dominance person is not illegal but the abuse of the position of dominance is illegal” is the term that is often used by corporates when they are accused of using their dominant position. And the competition act has explained the dominant position as the following-

  • In the relevant market, the firm can operate independently and prevail using its competitive policies.
  • Affect the profit of the competition or the different preferences of the consumers of the relevant market.

It is said that an abuse of dominant position has occurred when a company or a firm or a group of firms have used their already existing situation in the market in such a manner that will only let them enjoy the profit and dominate the entire market. It is also known as the way through which the dominant companies in the market use their position to exploit the market. The reason why the competition act of 2002 was enacted was to reduce the dominant companies to take over. It is common knowledge that the dominant practices are well definitely and their misuse will not let new companies emerge. As the old and dominant players will have the Monopoly hence this type of activity is ruled out by the law and the competition act 2002 will stop and prevent any of these activities. Section 4 of the competition act of 2002 defines what exactly is dominant position is. It states that a dominant position is a quality that a company has in a particular market. This act empowers and motivates the new companies to enter the market and prevent other companies from having a monopoly. 

Factors that determine the Dominant Position

The concept of dominance can be categorized in a few different ways concerning the market share that a particular enterprise or a group of companies has in the market. But the fact is that many other factors also play an important role in case of a company’s dominance. Few of the factors that determine a company’s dominant position are-

a. The amount of market shares a company has.

b. The overall size and the role of undertaking the assets also play an important role.

c. Reasons of the contenders along with their significance in the particular market are also a factor.

d. The overall financial intensity of an undertaking that has been performed by the company.

e. The amount of reliance that the consumers have on the particular action of undertaking that has been performed by the company

f. The amount of section and exit barriers that have been present in the market.

g. The Countervailing purchasing power of a company.

h. The overall market structure and tea market size in which a company is conducting its business.

j. Other social expenses and commitments that the use corporate houses have these actions are performed to help the prevailing situation of the society and are provided by financial support.

k. A company’s integration with other companies as well as its vertical combinations also play an important role while determining whether the company is in a dominant position. 

The competition commission of India is approached additionally to approve any of the essential that is needed while considering a company to be a dominant company.

Relevant Market

The initial issue that has to be resolved when in the case of a dominant company is when a particular company is using its dominant status to abuse the market. But first, we need to understand what a relevant market is. To understand what a relevant market one has to categorize the market using its geography and product. It can be understood that market applicability plays an important role while understanding the relevant market. Along with the geographical territory in which the product is being sold by the company.

Relevant Market Product

The relevant market product also plays an important role. As the market encompasses all the different products and services that can be interchangeable, that is when a customer has the liberty to make their decision and which products to buy as we all know there are substitute goods; apart from this here are the factors that determine relevant products are-

A. The preference of the customer.

B. The physical characteristics of the commodity.

C. The industrial products and their classification.

D. Specialised products.

E. The exclusion of the in-house producers.

A famous case is Atos Worldline v. Verifoneindia. Under this, the competition commission of India had stated the relevant product market shall only be looked at from the perspective of demand and supply of the product along with the price.

In another case of Surinder Singh Barmi v. the Board of Control for Cricket India, the court stated that the relevant market can be defined through the demand and substitute stability of different types of entertainment that is available. And it was held that the cricket match could not be substituted by any other game neither the quality nor the feeling could be reproduced.

The Relevant Geographical Market

A market is known to be an area wherein the competition for supply and demand for various goods and services are conducted. These goods and services can be homogeneous and can be distinguished from the others. The following are the various factors that determine the relevancy of a product in the geographical area-

A. Transportation cost incurred

B. The national procurement policies

C. The adequate distribution facilities

D. The specialization required for installing equipment

E. The trade barriers

F. The various languages spoken

G. The various consumer preferences.

H. Need for a secure or regular supply on the quick after-sales service

It is very important to identify the company and how it uses its dominant position this can be understood with the help of section 4 clause 2 of the Indian Competition Act 2002.

Types of Abuse of Dominance

Mainly there are 4 kinds of abuse of dominant positions which are as follows-

A. The unfair or biased trading practices- Under this, the main question was whether the case of vertical agreements that are conducted between Flipkart and its preferred sellers on its platform be considered to be an abuse of dominant position under the Competition Act of 2002? The competition commission of India held that it appeared to be an exclusive partnership that was performed between the smartphone manufacturers and other various e-commerce platforms that were focusing only on the exclusive launch of the smartphone brands. First exclusive launch along with other preferential treatments which have only been provided to a few sellers and the various discounting practices can lead to the ecosystem being a hot commodity for new customers that will, in turn, have an appreciable adverse effect on the competition.

Here another important question that arises is that other practices of discounts and below-cost prices which are done by many companies are considered to be wrong as section 4 under the competition act defines the concept of Predator pricing. Predatory pricing is defined as the amount of the commodity that is set below the cost of goods or services and predatory pricing is prohibited provided this is done by a company that has the dominant position. Predatory pricing when it comes under the law would be inapplicable if the company was not having a dominant position in the first place. The right mentioned in the article before to determine “How a company is dominant?” the competition commission shall look into the 11 products that it is selling as well as focus on the geography to market that is purchasing at and consuming the commodity. 

And right mentioned in the article before to determine how a company is dominant the competition commission shall look into the 11 products that it is selling

B. Denying the various access for creating trade barriers to make it hard for any other company to come and set up a market as a dominant company cannot hold another company down.

C. Limiting the creation of scientific improvements another way to the dominant company can influence the market indirectly is by forcing a condition that limits the creation of certain merchandise or any technological advancements for the creation and usage of just a few selected companies

D. Protection of different markets in a company utilizes its dominant position to go into another market and steal the consumers of that market.

Hence it can be understood under section 4 clause 2 of the act that a company uses its dominant position to dominate and the market is illegal and such measures shall be avoided and stopped by introducing different ways indirectly to have an unjust advantage over other companies is illegal and all the companies which do this are penalized.

Types of dominant and positions

There are two times nominations by a company:

A. Excessive pricing

Under this a firm uses its power uses its strength or biasness and sets some conditions on different forms of shops for example in the case of Pankaj Agarwal v. DLF an apartment had to be distributed and it was drafted by the Delhi land and finance.

The commission had an upper hand and used the dominant position to exploit the purchaser and it one-sidedly abused what the customer faced.

B. The second type of exclusionary activity that is done by the dominant companies and others usually utilizes its strength to confine the entry of any other company in the market for example in the case of Shri Shamsher v Seil Honda. In this case, there already existed an agreement between the above-mentioned companies, and the overseas supplier was used to supply unique vehicle parts and was not allowed to perform free repairs search practices were deemed to be anti-competitive as they limited the new emerging forms.

The procedure followed by the Commission

Section 4 clause 1 of the act talks about the abuse of dominant position section 19 clause 4 gives a closer detailed list of elements that the commission shall consider while looking into a situation of abuse of dominance. Apart from these components comes from the market share size and release assets of the venture along with its significance and the geographical location of the product sales.

The commission after fulfilling all the essentials and understanding that there exists an abuse of the dominant position. Then guides the director general to conduct an examination and create an overall report. The commission also has the authority that has been vested upon them by the civil court. Under the code of civil procedure in certain situations like this wherein it can authorize any individual or a group of individuals to examine a particular company. The director-general has to then complete the set examination authorized to him by the civil court and then perform the search and seizure operation.

Powers of the Commission

After the passing of the request, the commission has the authority to pass and inter alia or any of the orders which are mentioned under section 27 of this act.

  1. Direct the said company to suspend all their activities and never to enter into a contract for understanding such as this.

B. Direct an enterprise to either alter an agreement or change the agreement completely.

C. Direct the enterprise in the current situation to submit any documents at the request of the commission

D. The commission can also pass various orders and issue different directions that it may regard to be fit

E. The commission can also force and penalize punishment to the round was that considered to be fit punishment shall be up to 10% of the normal turnover considering the last three preceding financial years.

F. For the more section 28 authorizes the commission to coordinate the creation of an agreement on enterprise by appreciating the current existing situation that such an undertaking doesn’t showcase an abuse of power

Interim Order

Section 33 of the competition act 2002 states that in the situation of pendency of any sort of investigation with regards to the abuse of dominant position the commission can parenthetically control the parties involved for such a duration till the order is complete or if it seems to be fundamentally or necessarily correct.

Appeal

After the establishment of the competition appellate tribunal COMPAT under section 53A of the competition act 2002 was established for hearing the various claims that were if you are passed by the commission. The court then hears the decision of the commission but before that, an appeal has to be documented 60 days after the commission has given any order or direction.

Penalties and Sanctions

When a company is said to have a dominant position commission can do many things as follows

1. The commission can direct or suspend such acts that missuses or use its dominant position to eliminate its competition as the same was held in the case of Re Shri Shamsher Kataria v. Honda Siel cars ltd. And in the case of Atos Worldline v. Verifoneindia. The court held that the overpowering companies had to stop the activities which were against the section of the Indian competition act of 2002.

It can further impose a penalty of up to 10% of the usual turnover in the considering the last three years. 

How to detect the abuse by a company?

Determining or understanding how a firm abuses the market is as important as the loss in place due to its nature it is considered to be very complex and a controversial topic as companies from their policies to be dominant in the market and have the most sales and they should thin line between being a dominant company and a company that is having high sales record because their product is good as mentioned before the competition act of 2002 contains the provision that clearly states that a company which abuses the market with its illegal policies will be penalized at the same time and it has condemned the dominant companies from using their dominance in the market competition act 2002. This act is in place to stop the dominant companies from controlling the entire market making it a monopolized market.

Now a question that arises here is the divided opinion then many judges have with regards to the precise definition of dominance as no one can define properly how a company can get dominant or what steps taken by the company should be considered a dominant step and even if a company is considered to uses a dominant position how for what penalty shall be avoided and penalties provided up to what or to what extent shell they are punished.

Some of the common examples of abusive practice are as follows

  • Pricing in a predatory manner
  • Living the customers by providing them loyalty rebates
  • Tying and bundling various products together to create attractive products
  • Refuses to sign a deal
  • Trying to squeeze margin price
  • Excessively pricing the commodity

You want to understand properly what can be considered to be abusive the competition commission of holidays needs to understand the consumers and the economy the company which has a large market share which might be considered to be a dormant company understand the law and economics in the particular market this is a hard task and not as easy as it sounds to promote proper use of the competition laws in situations where there has been an abuse of dominance power and monopolization the competition commission must consider all the factors and come up with the conclusion.

The concept of exclusive arrangements

Many times, exclusive agreements are used when a company is accused of using its dominant position and in theory, exclusive agreements are not competitive per se but can be a potential risk for other companies it is said that no enterprise or association of enterprises can or shall agree with regards to production supply distribution or any other services that can hurt the competition within the territories of India. Any sort of agreement that does this shall be deemed void. In Mohit Manglani Vs Flipkart India Pvt Ltd, the main question was whether Chetan Bhagat’s book titled “Half Girlfriend” which was available exclusively on Flipkart can be considered an abuse of dominant position? Here the competition commission of India came in and made it clear that it was not an abuse of the dominant position. It further added by saying that just because the book was only sold on an exclusive site and the exclusive agreement the retail markets are not getting affected rather, due to the entering of new portals in the market the competition is only improving, and hence this will not be considered to be a situation of dominant position.

In Re Delhi Mahavyapar Sangh v. Flipkart Internet Pvt Ltd.

The main question was whether the case of vertical agreements that are conducted between Flipkart and its preferred sellers on its platform be considered to be an abuse of dominant position under the competition commission of India held at it appeared to be an exclusive partnership which was performed between the smartphone manufacturers and other various e-commerce platforms that were focusing only on the exclusive launch of the smartphone brands. First exclusive launch along with other preferential treatments which have only been provided to a few sellers and the various discounting practices can lead to the ecosystem being a hot commodity for new customers that will, in turn, have an appreciate the able adverse effect on the competition.

Conclusion

In these hard times, the competition act of 2002 has held on these small businesses to continue and somehow manage as it keeps a close watch on which companies are abusing their dominant position and instantly penalizes them as well and with the increase in companies many new players have emerged and have taken the dominant position and once again this act has become more relevant than ever. This act allows and shows that when are independent in the business and any newcomer can come and enter into the business and not fear the dominant companies. Hence in the market, everyone is guaranteed an equal opportunity and a non-biased approach towards the market it should be kept in mind that the act does not remove competition the act promotes competition. As long as the competition is healthy and not a cut-throat competition as the entire society is elevated when companies do good and the society suffers when the company overpowers the other company and becomes a toxic market and everyone suffers.

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