This article is written by Aditya Trivedi who is pursuing a Certificate Course in Competition Law, Practice And Enforcement from LawSikho.
Table of Contents
Introduction
Competition law not only ensures competition in the market but also checks practices that are harmful to competitive processes. Competition Act, 2002 (“the Act”) is the sole legislation in India on competition law. It aims to prevent practices having adverse effects on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by competitors in the market.
Digitalisation has reshaped competition in traditional markets and led to the creation of many new markets. Technology, telecom, and internet-based companies dominate the world’s best brands today. The Government of India’s Digital India Campaign has improved online infrastructure, improved internet connectivity and advancing science and technology. The platforms provide a variety of services including, e-commerce (Amazon), social media (Facebook), online payment apps (Google Pay, Phone Pay), search engines (Google) and others. As we know, there are innumerable websites and companies dealing in the abovementioned spheres of economy.
However, we see that the said companies are used mostly and here, competition law comes into picture. Section 3 and 4 of the Act defines anti-competitive agreements and abuse of dominant position respectively. The report of the United Nations Conference on Trade and Development suggests that such digital platforms have gained a lot of consumer data and subsequently greater market power. In USA, various federal agencies including the Department of Justice have filed lawsuits against Bigtech especially, Facebook, Google and Apple. This raises concerns for a competitive economy giving every market player a level playing field.
Digital economy causing growth in this sector
Search engines
In the Digital age, search engines are the pillar of the digital economy. According to a report, Google holds the highest share (92.41%) in the search engine market, followed by Bing (2.46 %) and Yahoo (1.48%). This shows the phenomenal rise in Google’s digital empire over the years. The Department of Justice of the US Government has filed lawsuit against the tech giant for ‘abuse of dominant position’. It is alleged that Google uses its dominant position to manipulate search results, give its own products and services higher rankings over rivals. This anti-competitive action of Google resulted in maintaining its monopoly, depriving consumers of right to choose, preventing innovation and creating a barrier of entry in the market.
Competition Commission of India (“CCI”) hasn’t yet ordered a probe against Google for abuse of dominant position in the search engine market, however, in the online payment market, that will be discussed in later part of this section.
Social Networking Sites
Social networking sites are important for people to connect and network. In Covid-19 pandemic, it has been observed that use of social media has increased drastically. However, some platforms like Facebook use their social networking monopoly for anticompetitive conduct. The Federal Trade Commission (“FTC”) of the US has sued Facebook for illegal monopolization. It is alleged that Facebook had engaged in a systematic strategy following its acquisition of Instagram and WhatsApp, and the imposition of anti-competitive conditions on software developers—to eliminate threats to its monopoly. This resulted in few options available for internet users for social networking and lack of competitive prices for advertisers.
CCI in its suo moto order filed against WhatsApp u/s 26(1) of the Act. It is alleged that Whatsapp is the dominant player in the OTT messaging apps through smartphones in India. The new privacy policy of WhatsApp doesn’t give options to users to reject the terms and policy in sharing their data with other Facebook companies. The regulator called the policy a ‘take-it-or-leave-it’ privacy policy and described them as broad, vague and unintelligible. It gives the company unfair advantage over its competitors and snatches away the dominant sovereign right of users for their personal information. Thus, WhatsApp has prima facie contravened the provisions of Section 4 of the Act through its exclusionary and exploitative nature. The Director-General of CCI has been asked to investigate the matter and submit the report within 60 days of the aforesaid order.
E-commerce
In today’s world, digital marketplaces have replaced traditional markets. Competition law plays an important role in ensuring level playing field for competitors and competitive choices for consumers in the e-commerce sector. In its market study on e-commerce in India, CCI gained insights on the sector relating to search ranking; collection, use and sharing of data; user review and rating mechanism; revision in contract terms, and discount policy. The study suggested ‘self-regulation’ to e-commerce platforms. On the basis of findings, the priorities of CCI are:
- Ensuring competition on the merits to harness efficiencies for consumers.
- Increasing transparency to create incentive for competition and to reduce information asymmetry.
- Fostering sustainable business relationships between all stakeholders.
CCI’s probe against Amazon and Flipkart in January, 2020 arose out of complaint from a society of traders dealing in smartphones and related accessories against the e-commerce giants for contravention of Section 3(4) read with Section 3(1) and joint dominance under Section 4(2) read with Section 4(1) of the Act. This leads to an appreciable adverse effect on competition (“AAEC”). These allegations in favour of existence of vertical agreements were accepted by the CCI, while an allegation of their joint dominance was rejected as the same is not contemplated under India’s Competition Act. CCI has majorly credited the issues involving the exclusive launch of mobile phones on these platforms, referred sellers, deep discounting and preferential listing of private labels.
In the MMT-OYO case, the CCI decided to direct an investigation into the agreement between OYO and MMT-Go specifically on the issues of exclusion of competitors and the effect of such exclusion on competition in the market. One of the issues being investigated in the MMT-OYO case relates to allegations of predatory pricing/deep discounting by charging below average room rate, charging of exorbitant commissions from hotels, restrictions of room and price parity imposed by MMT-Go etc.
Payment Apps
It is due to cashless economy and digital advancements; we have seen cash transactions being replaced by online transactions via mobile applications. In XYZ v Alphabet Inc., the issue of pre-installation and prominence of Google-Pay on Android smartphone arose and CCI alleged Google of contravention of Section 4 (‘abuse of dominant position’) of the Act. The commission observed that mandatory use of application store’s payment system for paid apps and in-app purchases restricts the choice available to the app developers leading to a high commission fee of 30%. Such a condition is unfair in terms of Section 4(2)(a) of the Act. It further noted that Google’s bias and search manipulation to divert traffic to its payment app is interfering with the process of ‘competition on the merits’.
Another significant case in this relevant market was against WhatsApp Pay, alleging anti-competitive conduct by WhatsApp’s Unified Payment Interface (“UPI”) service WhatsApp Pay. The informant alleged automatic installation of its payment app within the messaging app. CCI dismissed the case on the grounds that there are no unfair conditions, tying and leveraging; no lack of consumer choice and the UPI sector is at a nascent stage to accommodate a pre-installation mechanism. CCI could have investigated WhatsApp’s policies in the instant case, however, we observed its suo moto action in 2021 which may lead to unfurling all the anti-competitive conducts of the company.
Emerging Trends in Digital Economy
It is said that ‘Science and technology can solve world’s problems’, but for a competition lawyer, ‘science and technology can create antitrust problems.’ New and emerging trends in the digital world such as cloud computing, mobile web services, smart grids, digital tools for education and skills, digital workplaces, and similar innovations are boosting digital infrastructure. Similarly, we have seen a rise in use of digital currencies. It will lead to regulatory conflicts and antitrust issues as well. Cryptocurrency falls under the regulatory ambit of Reserve Bank of India (“RBI”) and use of blockchain technology in capital markets falls under the jurisdiction of the Securities Exchange Board of India (“SEBI”).
Recently, CCI has released a discussion paper on blockchain technology and law, prepared with EY India. It warned the blockchain stakeholders to be mindful of competition law provisions. Blockchain applications should not be used to share competition-sensitive information among competitors including price, cost or output information. The paper also emphasises on use of smart contracts and blockchains not to be designed for anti-competitive conduct. The article guides on ‘abuse of dominant position’, as the dominant enterprise should avoid fixing unfair prices or conditions of provision of services or limiting production of goods/services or denial of market access et al.
Conclusion
As discussed, search engines, social networking sites, e-commerce platforms and payment applications et al. are important facets of the digital economy. Competition law issues of anti-competitive agreements and abuse of dominant position plays an important role in ensuring ‘fair competition for greater good’ in the market. Unlike traditional markets, digital markets grow rapidly and have various technological issues involved which might pose a trouble for competition authorities to administer or understand at prima facie stage, but we’ve seen that orders are passed by CCI to stop BigTech giants and e-commerce giants from abuse of dominant position. Such orders will save the economy and will benefit the consumers at large.
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