This article has been written by Sukruti Khandelwal, from Symbiosis Law School, Pune.

Introduction

Guest Speaker: Abir Roy, Co-Founder of Sarvada Legal. He has extensive experience in Competition Law litigation and enforcement. Formerly, he headed the Competition Law vertical at esteemed Lakshmikumaran & Sridharan. Before this, he has also worked with esteemed Amarchand Mangaldas. 

Host: Shweta Rath, Senior Associate at LawSikho. 

What is the background of the Competition Law?

The best way to answer is to say that it is a market behavioural law that regulates the market conduct of enterprises. What we want is a perfect competition, which is a free and fair market where there are a large number of buyers and sellers. So, if the buyers and sellers are large in number, then the price will be low, the products will be of good quality and the consumers will be happy. Enterprises acting together or a strong enterprise (Dominant Enterprise as per Competition Act) which act in a manner that disturbs free and fair market behaviour are dealt with under the Competition Law. 

Competition Law is also known as anti-trust law in the United States. In the 1890s, all the investment into a company was put by a Trust. The first case being that of the Standard Oil Trust. This Trust had shareholdings across multiple oil companies. There were such other trusts which held shareholdings in many other companies. Ultimately, what happened was that these trusts began to determine the market behaviour of everybody. So, the US Legislature felt the need to break these Trusts. Hence, the Anti- Trust Law, which acted as an antidote in such a scenario. 

What COVID Related Issues and Litigation under Competition Law are likely in the next 18-24 months?

As one would have already noticed, the prices of face-masks, Personal Protective Equipment (PPE) kits, and all the essential services have increased in this time of COVID-19. This is an unforeseen situation, maybe caused by supply shortage or other anti-competitive factors. There are various Anti- Trust Authorities such as European Union, Italy, Poland, Norway, South Korea, USA and the United Kingdom which have stated that since we are in an unprecedented situation, please do not use opportunistic tactics. This means that tactics that harm the consumer in terms of higher pricing or lower quality should not be adopted. However, as the motive of profit takes over, there are always some enterprises that engage in such activities. So, for example, the whole sellers who refused to sell face masks to the hospitals but wanted to sell them in the open market were heavily reprimanded by the Polish Government, the Italian government came heavily on Amazon and Ebay for excessive pricing of sanitizers. 

Unfortunately, in the case of India, the Competition Commission of India (CCI) issued only an advisory that stated that the enterprises can collaborate provided that the activity is in public interest or innovation as the case may be. This is just rehashing the existing law as it stands today. At times like this, what is needed is for the regulator to stand up, take notice and issue a stern guideline/notification that no opportunistic behaviour is to be allowed. This can be substantiated by the fact that the price of face-mask has increased by 300% in comparison to the pre-lockdown era. Although, the prices of face-masks and hand sanitizers were capped by bringing them into the Essential Commodities Act. However, the implementation of the notification was till June 30, 2020 only and the Ministry does not seem to extend it for the time being. As on June 30, 2020, the Essential Commodities Act that somehow capped the pricing of face-masks and sanitizers and the raw material used in their manufacturing, no longer applies. So, it becomes essential for a regulator to step in and to ensure that such conduct does not take place. 

Now, that the CCI has not come up with a solution in this regard, such behaviour will become prevalent. This behaviour will lead to multiple litigations because of many filings before the CCI. Considering the situation, CCI may probe an investigation, a speedy one against such Crisis Cartels. In such an investigation, enterprise(s) will have to show some efficiency given to the consumers for justifying such behaviour. 

CCI should rely on the conduct of other regulators in the West and the East. Countries around the world are issuing stern notices, warnings, and even investigations. For example- Turkey has started to investigate 29 supermarket chains for increasing the prices. It is a high possibility that initiating an investigation in this direction can curb such behaviour. This trend is likely to unfold in the next 18- 24 months. 

Do you see the possibility of companies entering into co-marketing agreements, joint venture agreements, sharing resources and co-supply agreements in times like this? 

Yes, as a trend and a compliance perspective, there will be a sharing of resources, Research and Development, and co-marketing between companies. However, the companies will have to show that it has led to efficiency in agreement and in practice. Just creating an agreement will not take the company outside cartel. It is a must for the company to show that it has delivered efficiency in the market. On the flip side of it, the companies must not make supernormal profits. They should not increase the price just because the supply in the market is low and the inherent demand is very high. Unfortunately, this practice of earning supernormal profits by increasing the price by leaps and bounds is happening right now. Whether this is for Cartel behaviour or actual supply shortage is a point of investigation. So, there will be investigations with regard to this in the near future. 

Can the Companies take the defence of survival in the market to justify their agreements? 

This is referred to as Failing Firm Defence. According to this, a company pools in resources and enters into agreements on the premise that the consumer will ultimately be harmed if the company runs out of business. So, when the company runs out of business, it will no longer remain a viable alternative in the market as the company is now outside the market. The consumer will be affected by this. However, this is a thin line.  As a regulator, it is important to determine through an investigation whether the company is providing efficiency or not. From the Company’s compliance perspective, these are the defences which the company will take provided that it is documented in the agreement and in practice. It can be documented in agreement or internal white papers or Board papers. This essentially means that it needs to be in a contemporaneous document. The company should do this now and not wait for litigation to start rolling. This must also be adopted in practice. The standard is that it should be proportionate to the efficiency. Whatever Joint Venture the company indulges in, it should help the company in attaining that efficiency. Having said this, there is still likely to be a lot of investigation in concern to this. 

What is the current state of litigation in the Competition Commission of India? 

Information is being filed before the CCI. However, in the cases dealt by the guest speaker, the hearings have been deferred. Very few hearings have actually happened. Filing of fresh matters is taking place but the hearings of the previous matters have been postponed. This is a sad reality. The CCI should take a cue from the Supreme Court and the various High Courts and should start online hearing. Confidentiality is a concern for the CCI as it deals in business matters but there is a need to find safeguards. Online hearing is the way forward. A market regulator such as the CCI should not function at less than optimum capacity.

Despite the current level of functioning of the Competition Commission of India, would you still advise someone to approach it for filing information? 

Completely! The act itself is not suspended. It continues to operate. If an individual or a consumer body or dealer does not get a product from a mass supplier, there should be a filing of a complaint. Let’s not wait for that! There is an e-mail address on the website through which the information can be filed after paying the filing fee. 

What is private enforcement as an emerging trend in Competition Law? 

Generally, if one is found in violation of the Act, a penalty is imposed. The amount of penalty imposed by the court of the land is transferred to the Consolidated Fund of India and does not go to the informant. Thereafter, the informant can file a case for damages before the National Company Law Appellate Tribunal. This is called Private Enforcement. Some Private Enforcement cases are currently on. Fundamentally, if the Private Enforcement takes off, it will give much more teeth to the Competition Law as a subject and market regulator. If one has incurred damage, one can file a case before the National Company Law Appellate Tribunal (NCLAT). Based on the law as it exists in the EU, one gets damages not only for the actual losses but loss in profits also which is an opportunistic loss. For example- I have suffered a loss of INR 100 because of your conduct in the last three years, then I will not only claim INR 100 but also the opportunity loss had I set up more factories, increased product supply with those INR 100. This calculation is a part of economics and will be adduced as economic evidence. However, the law is silent in India but according to the EU practices, one can claim both actual profits and loss in profits. 

The difficulty which arises is that one can easily come up with figures in abusive and dominant cases but cases of Cartel behaviour are more difficult. For example- you have found five participants who, under the aegis of a trade association, indulged in cartel behaviour and materials were given to you at a mark-up price by them. Now, it is extremely difficult to determine how much of an actual loss you have incurred due to the action of a single enterprise or trade association. The apportioning of loss is a Herculean task. 

The other issue which is being debated is that while a Competition Law action is an Action in Rem, a compensation action is an Action in Personam because one is personally asking for damages and need to show each loss incurred from everybody individually. In this case, can one file a combined application for all of them or should one file individual applications? On the flip side of it, one can file class-action but in a class-action, the respondent remains the same. So, can one file a compensation application from Company A against Company B, C, and D as a common respondent because one’s claim against each one of them would be completely different? This is a question of law. These are the secondary issues that will come up. 

As a fundamental point, Private Enforcement should pick up because that will give a lot of feet to the Competition Authority to impose penalty as well as personal damages. To take an example forward, say, in a cartel case, one has filed for Leniency despite being the Ringleader (one who orchestrated the cartel) and asks the Authority to give him 100% immunity and find the others. So, he may get immunity but a Private Enforcement action can still be taken against him. Private Enforcement damages will be much more than the penalty because it is a combination of actual loss and loss in profits. For example- in the case of MCX, it filed a compensation of INR 800 crores while the penalty is only INR 50 crores. However, this will be heavily contested. So, there will be a lot of jurisprudence which will be laid down on this point. 

What is the reason for parties not keenly adopting Private Enforcement Action despite being a provision for it in the law? 

This is because the law is designed in such a manner. One cannot file the compensation application before the CCI. There is a need to approach the National Company Law Appellate Tribunal. The consequence of this is that one has to wait for the order from the CCI which takes its own sweet time. Once the CCI has passed the order, only then one can file the compensation application if the opposite party is found guilty of Section 3 or Section 4 of the Competition Act. Those opposite parties will definitely appeal. So, the National Company Law Tribunal will tend to decide on the merits of the appeal and then pass the order on the subject-matter before it. For example- if one finds a party guilty on five grounds, the compensation application will be on the basic harm caused due to those five grounds. If the National Company Law Appellate Tribunal accepts only three grounds and then again, the party will appeal. So, there will be appeals and cross appeals. Unless the main merit of the matter is settled by the Supreme Court, the application can be filed but will not be heard. The Supreme Court or NCLAT will have to come out with the wire media to ensure that both can run parallel. This is a novel approach that the regulator or a quasi-judicial body (herein, the Appellate Tribunal) and the Supreme Court have to devise over time. Since this has started now, it looks like a huge trend going forward. 

What is the relation between Competition Law and the digital world in the present time? 

Microsoft was the only technology company on the list of top ten companies in terms of market capitalization globally in 2009. Fast forward to 2018, out of the top ten, seven are technology-based companies. There is Apple, Google, Facebook, Microsoft and Amazon. Recently, a UK authority came out with a report on July 1, 2020, along with several other such reports, which stated that everybody is grappling with the problems posed by tech giants. The problem is so big that the UK Competition and Market Authority (CMA), which is pari materia to CCI in India, has essentially said that the present rules are not sufficient to deal with this. The speaker does not agree with this view and firmly believes that the law can deal with this problem. 

One of the most pertinent questions is how did they become so big without being checked? The traditional norm of doing business is that a product or a service is sold for a consideration. This is a contractual principle. These tech giants, which are highly innovative and so much ahead of the curve, have tossed the traditional norms of investment. One does not have to pay to search on google or to create a Facebook account. To that extent, whenever the demand is zero, there will still be people coming in. The idea has gone from profitability to the creation of a vast network. Since these services are for free, nobody complains. The consumers are happy and the authorities have also been relaxed/ laid back, so to say, in checking their behaviour. Hence, they have become so big. There is a famous saying for this- Power corrupts. Absolute power corrupts absolutely.

People are wondering about how to regulate them, now that they have become so big. The principle of Competition Law is that being big is not bad but there is a need to regulate the conduct.  The question here is how to regulate the conduct so that they keep innovating but not take their counter-parties for a ride. According to statistics, the market of digital advertising in India alone is worth INR 2000 billion as of today and it was just INR 40 billion in 2015. So, this is the amount to which they have aggressively grown. 

Now, there is a difference in digital advertising too. One is search advertising and one is display advertising. Search advertising means that certain products appear on the screen when you specifically search for something. Display advertising is what helps in increasing brand awareness by advertising products on the screen which the consumer at hand may need or not. The UK CMA report has found that Google is dominant in search advertising and Facebook is dominant in display advertising. The suppliers of these advertisements pay for them to Google and Facebook respectively which is known as an intermediate agreement. This is a problem. CCI is looking into this issue as to whether this is an abuse of dominance and how are these intermediate agreements being structured. EU has already found them guilty. We have to see the direction of investigation in the Indian context. Statistically, the search on google is free but the revenue for them per search has doubled since 2011. For Facebook, it got £5 per account created in 2011 and got £50 for the same in 2019. The number of users has grown exponentially and the revenue per user has gone up by ten times. 

If one buys an Apple phone, the default browser is always Google. So, this means that there is an agreement between these two biggest tech giants. If one searches for something on Google and goes through the google shopping list, Amazon products are listed there. So, this means that there must be an agreement between Google and Amazon and they cater to the same consumers according to their search capacity and the buying capacity respectively. Amazon caters to the kind of consumers who want to buy and sell and Google also caters to the same consumers but in the search capacity. These are the things that must be investigated. 

Another reason these tech giants became so big is that they had their skew of acquisitions. They acquire companies which are below the radar of thresholds from time to time. No authority checked them. Law, especially a market driven one, has to be adaptive in nature. It cannot be reactive. Although, it cannot be pro-active because the technology will always be ahead of the curve. The existing law must be applied to see whether there is scope to cater to such needs. There is a lot of clamour in the committee to reduce the threshold for technology and pharmaceutical companies to protect them from “killer acquisitions”. Under Section 3 of the Competition Act of 2002, there is a word of ‘acquisition’ that is not present in other laws around the world. So, why can we be not slightly nimble and pro-active and look into Acquisition Agreements under Section 3? As a regulator, there is a need to assume jurisdiction on such behaviour. This cannot be let to become so big just because of a lacuna in the law. The golden rule of interpretation can be brought in for such purposes. Obviously, if cannot be brought in, it cannot be done. That is an excess of jurisdiction. If it can, then why not!

There is another debate as to e-commerce on platform neutrality. Can a platform act as a marketplace and still give preferential treatment to certain suppliers? The UK CMA and the draft E-Commerce policy have stated that we need a new regulator which will decide fair competition issues. The draft should be seen first. There would be data localization issues. These are the things which will come. Market study reports on e-commerce say that the terms and algorithms should be created. A noted Competition Law Economist Richard Posner recently said that even if they make these terms and algorithms available, who will understand them? The regulator will only be able to understand them with the help of experts. This is the least that can be said in view of so many theories going on. 

What is the Hub and Spoke issue in the present domain of Competition Law?

The Hub and Spoke issue means that if party A and party B are engaged in a similar line of business and are engaging in cartel behaviour such as fixing prices, limiting supply. Party A and Party B appoint a common distributor and the distributor C acts as a hub to share information of Party A with Party B and vice-versa. This information distribution helps in forming the cartel. Party A and Party B which are at the horizontal level are not directly interacting but through a hub which is Distributor C. It has been debated in the Review Committee that it should be brought in. However, according to the speaker, it is already a part of Section 3(1) of the Competition Act, 2002. Be that as it may, the reason it should be brought in is that the distributor will be levied with the same penalty. There is a common notion that one should not have exclusive distribution agreements because they are looked upon with jaundiced eyes. It is felt that such distribution agreements may be a violation of Section 3(4) read with Section 3(1) of the Competition Act, 2002. On the flip side, if there is no exclusive distribution, this means that one’s non-exclusive distributor can be the distributor of a competitor also. This can again lead to the hub and spoke issue as explained above which poses a bigger risk. As advice, have strong confidentiality clauses in the distributor agreement linked with termination clauses. So, if there is a breach of confidentiality, then it should be allowed to terminate the agreement directly without recourse to damages by the distributor. Whether to exercise that option of termination is the company’s call but the agreement should allow that. 

In the UK, there is a new concept named Algorithmic Collusion which is nothing but a hub and spoke issue. In this, a third party creates an algorithm, shares the algorithm with all the players in the market, and that person who created the algorithm monitors the Cartel. So, in the UK, a software supply company (a consulting company) was fined for Hub and Spoke cartel in 2019. This company was monitoring the deviation from the cartel. So, the cartel participants were held to be anti-competitive and penalised. Even the software company which was in no way related to the same line of business was also held to violate the law.

Questions from the audience

How to file information before the CCI? 

In short, the General Regulations of 2009 provides the entire process on how to file information before the CCI. One can either file it or the CCI can take Suo-moto cognizance of it. 

It has been seen that trade associations act as a catalyst to cartel behaviour. Will that trade association be seen as a hub to these entities, although unknowingly? 

The basis of the hub and spoke cartel is that the intent is always involved and the association will be held guilty if there is evidence to prove that it contacted all the entities to catalyse and orchestrate this whole thing. Also, the idea of the hub and spoke states that it should be an independent third party. Trade association is ultimately an association of members, so an enterprise is also a member of the association. So, from the competition law angle which is substance over form, they are not strictly independent. Hence, to an extent, there is an involvement of hub and spoke issue but they will not be held guilty under Section 3(1) but Section 3(3) only which is Cartel behaviour.

Should exclusive agreements between tech giants such as advertisement of OnePlus phones only on Amazon come under severe scrutiny? 

It is a live e-commerce case which is going on. According to the view of the speaker, this should be investigated. Let’s see what the CCI comes out. It is a point of investigation not only in India but around the globe. 

What is the direction of CCI to deal with anti-competitive conduct of e-commerce companies within the ambit of the law?

There is an investigation in this regard. The point is that Amazon and Flipkart respectively trade with their preferential sellers. So, there was a group of traders that alleged that it was anti-competitive and it is a violation of Section 3(4) of the Competition Act. When the CCI took cognizance of it, it said that such conduct of platforms not being neutral may cause an issue under the Competition Law. The CCI itself came out with a market report in which it laid down such issues and also the recommendations to ensure that the platform remained neutral. Apart from this report, an e-commerce policy may also come out. The broad flavour is that the platforms should remain neutral and so has been held by the EU too. 

Facebook is about to launch an app similar to TikTok with Jio’s network support, now that they have struck a deal with each other. In light of this, should the CCI not look into the future harm to be caused to the competition due to their data misuse potential? 

CCI has already approved the Facebook deal. Although, the concerned order is not out yet. All of this as asked above should be analysed. The merger control authorities in India and worldwide are too constrained over the fact what is the overlap right now. People do not look into potential overlaps. So, for example- Reliance has already come into Jio Meet which was not present before the deal. Let us wait for the actual CCI order to come out. 

Let’s take an example to see whether they can be held to violate Section 4 of the Competition Act, 2002. Facebook is dominant in social media. It is the kingpin in digital advertising. We see how Facebook rolls out in India but definitely, a case of leveraging can be made out if it uses its power to do this. CCI should act fast or at least come out with an advocacy initiative to understand Facebook’s practices in India.

In this kind of scenario, what happens in mergers is that when the CCI approves such sensitive deals, it always takes a commitment from the concerned parties that they will not enter into anti-competitive arrangements for at least a couple of years. In the deal between Jio and Facebook, Jio had made it very clear that their present deal does not entail any data sharing provisions. This will be closely monitored by the CCI. So, this puts even more responsibility and scrutiny on Jio and Facebook after the deal. 

Now after Facebook’s investment in Jio, Google and Amazon are also looking forward to investing in Vodafone Idea and Airtel respectively. Essentially, this leads to tech giants entering into Indian Telecom market. What will be the impact of this from the perspective of Competition law? Will this lead to the throttling of privacy? 

There is no denying that we need a data protection law. A data privacy violation can be a competitive law violation because the consumers are getting affected. The extent or the harm which has been caused to the consumers because of leakage of personal data has to be done by an independent regulator. Competition law authorities should be regulating market forces and privacy data breach is definitely one of them. 

With the situation of investments coming in from tech giants, let’s take a hypothetical example- Amazon invests in Airtel and then slowly and steadily, something happens which does not allow Airtel consumers to log into Flipkart or any other shopping website or maybe the data charges change. These are the kind of issues which may not be part of the plan from day one but the regulator can expect that this may happen in three years. There is no need to give a remedy now but the point is continuous monitoring. Just as the EU is revaluating the definition of the relevant market in 2020, a regulator such as CCI should also evaluate the conduct of people, engage with those enterprises and send them questionnaires to respond to as a part of its advocacy functions. This power is granted under Section 49 of the Competition Act, 2002 and may as well use it.  

What was the discussion concerning Sectoral Overlaps vis-á-vis CCI if the issue was settled by the Supreme Court of India?

The case said that certain issues require the technical expertise of a regulator. So, let the CCI first come in and decide. Taking this forward, the issues such as points of interconnection or how do you define technical inputs require technical expertise. A High Court, on the issue of e-commerce policy, granted a stay reading the Bharti Airtel Judgement and said that since the Enforcement Directorate (ED) is looking into the same issues, let the ED come out with a report and then let the CCI come in. The interpretation of this judgement may require further elaboration in subsequent cases. 

In the Monsanto v Ericsson case, wherein the Delhi High Court said that their remedies are different and they do not overlap. However, the parties have approached the division bench stating that the IPR or whatever the statute, is the correct forum to deal with such disputes. We will see how it pans out. Bharti Airtel Judgement has definitely touched upon one thing but has not settled all the issues. 

Regulators around the world are very proactive on anti-competitive practices. Is the CCI in India not equally responsible to be that proactive in its actions? 

At least, in the last three years, CCI has become very proactive and conducts market studies itself. The most premier matters dealt by the CCI are with respect to technology companies. It is not that the CCI is turning a blind eye. It is developing legislation slowly but steadily. 

The CCI should not be constrained by the statute. It is a vastly written statute. The statute should be used to curb the mischief. The right way to approach is to conduct market surveys that will provide a holistic perspective. The UK, which is a market half the size of India, had a market survey report of 430 pages. Every word in the UK report was information-rich. There should be more such practices in India. The digital advertising market in the UK is £14 billion which is comparatively smaller than India. So, imagine the scope of surveys in India!

In 2017, there was a case in the EU wherein the ECG stated that Uber is a transportation service provider along with digital service. What is your view on this? 

In the case against Uber, the speaker is representing Meru at different forums. On this specific issue, there are conflicting judgements in the US. In India, there is a Karnataka High Court judgement by a single judge bench which has clearly said that ‘Uber’s argument that it is a mere digital platform is nothing but a hypnotic illusion. It is a transportation company.’ Uber went into appeal and the issue is still in debate. Even, the CCI has said that it is a transportation company, though it was said in reference to Ola. This should apply to Uber as well. There is also an EU judgement to this effect. 

Do you think there will be a rise in mergers and acquisitions after a year or so due to the COVID impact? If yes, will the CCI continue rubber-stamping every transaction as it has been doing so since its inception? 

CCI does not act as a rubber stamp to every transaction. There have been a lot of transactions where the CCI has taken almost a year to legislate upon. 

There will be a rise in mergers and acquisitions because the valuations of the company will go down. The cash-rich companies will wait for this financial year. On the issue of change in the approach of CCI, this is a slightly unfair criticism levelled against the body. CCI has done a good job in financial transactions and strategic acquisitions. 

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