This article is written by Sehaj Sofat, pursuing a Certificate Course in Competition Law, Practice And Enforcement from LawSikho.

Introduction

The concept of the ‘essential facilities’ doctrine (“the doctrine”) differs greatly across jurisdictions. Simply put, the doctrine means that a player in the market who is a monopolist or is in a dominant position is obligated to share its resources with other players in order to facilitate healthy competition. In other words, the doctrine implies that if not shared with its competitors, any facility created by a player will act as a barrier for the  entry of other players into the relevant market. This doctrine is critical because the denial of minimal facilities or ‘essential facilities’ would lead to unjust refusal of access of new entrants to the market, which would hinder healthy competition in turn.

Status the doctrine in the United States

The roots of the doctrine can be traced back to the American case law of United States v. Terminal Railroad Association wherein the Supreme Court of the United States held that  exclusive control over the railroads across the Mississippi river to St. Louis to St. Louis by the Terminal Railroad Association (“TRA”) would lead to unjustified restraint of trade. This is because these railroads are the only possible means of transportation therein and such exclusive control would act as a barrier for other railroad companies. The Court based this decision on the extraordinary situation at St.Louis where no member of St. Louis could enter or leave without using these “railroad facilities” thereby making these facilities a public necessity that no one can monopolize. 

However, the doctrine has not been generally appreciated in the U.S. since it was first put forth in the aforementioned judgment. The commentators have expressed the opinion that “the essential facilities doctrine” restraining the procedure anti-competitive activities has lost traction in the USA. This is in view of the common case concerning Verizon Communications Inc v. Law Offices of Curtis V. Trinko, LLP (“Trinko Case”) in the United States. It was  indicated by the Supreme Court that the ‘essential facilities’ doctrine has never been specifically accepted. In this case, Telecom Firm Verizon was sued on the grounds that Verizon had not shared its networking services for marketing with other competitors. In this case, the United States Supreme Court declined to extend the doctrine of essential facilities on the basis of the fact that there was no refusal to access essential facilities in terms of sharing of networks with the competitors and hence there was no violation of anti-trust standards. In fact, the provision of such essential facilities in terms of sharing of networks  was provided for by the Telecommunications Act, 1996 which was already in practice. 

It is worth noting in this regard that the doctrine was initially drawn up in order to determine the responsibility for trade monopolies in compliance with Section 2 of the Sherman Antitrust Act, 1890. But there is no primary function of the doctrine according to US law since the Trinko Case and the doctrine has been utilized for a  subsidiary role to assess liability under the competition law.

Status of the doctrine in the European Union

In contrast to  the United States, the essential facilities doctrine has found more acceptance in European Union (“EU”). The doctrine was dealt with in the B&I Sealink Case for the first time. Sealink was the owner of the Holyhead harbor as well as the ferry operator authority of the port that supplied ferry services between the UK and Ireland. In due course, Sealink changed the schedules of its own sailings which created hindrances for B&I in utilising the port for transportation. The European Commission (“Commission”), while permitting such access to B&I, observed as follows:

“Even if the operator of an essential facility needs to provide access to non-discriminatory terms, temporary measures that authorize a new competitor to enter the market need more explanation than measures that protect an already existing  competitor’s position.”

In one of the cases that followed the B&I Sealink Case, related to the same port, the Commission had to decide whether a new entrant into the market can utilise the Holyhead port for transporting products. The Commission ruled in favour of the new entrant stating that the fair and non-discriminatory treatment is also applicable to new competitors as to the existing ones. 

Thus the contours of the essentials doctrine on both sides of the Atlantic Ocean can be said to have been considerably limited. This analysis reveals that the two jurisdictions having the most advanced jurisprudence on competition law worldwide, have not had a very satisfactory experience with the doctrine.

Doctrine of Essential Facilities and India

Silent Stance of Competition Commission of India

In India, the law of competition is still in its infancy. Whilst the doctrine of the essential facilities is yet to be applied in practice by the Supreme Court of India, there is a wide spectrum of interpretation in the Indian competition law. For example, Section 4(2)(c) of the Competition Act, 2002 (“the Act”) prevents an undertaking from abusing its dominant position which leads to denial of market access. In some of the cases, such as Shamsher Kataria v. Honda Siel Cars India Ltd and Turbo Aviation Colo, the question had arisen with respect to the ‘refusal of access’ before the Competition Commission of India (“CCI”). However, the CCI  did not specifically discuss this aspect in both the cases. 

An interesting aspect  in India’s legal framework is that some or the other legislative or regulatory mechanisms control most of the essential facilities in the country. For example, the 1994 National Telecom Policy lays down a spectrum authorization system, an invaluable facility in  the telecommunications sector. Similarly, licensing systems operate by creating rules and regulations to be followed in other vital sectors such as pharmaceuticals, petroleum and gas, power etc. Thus, in line with the rule passed by the Supreme Court of the United States of America in the Trinko Case.  if certain regulatory structure  already exists providing for the functioning in terms of legislative policy, the essential facilities doctrine is not applicable.

In the case of Arshiya Rail Infrastructure Ltd. v. Ministry of Railway & Ors (“Arshiya case”), CCI discussed the definition of ‘essential facilities’ first. The point, in this case, was that CONCOR, a PSU, was refusing to keep the private train container from accessing the terminals and sidings that were solely operated by them. The private train containers (including the petitioners) argued that these facilities would fall under “essential” freight infrastructure and hence essential facilities doctrine would be applicable. Whilst rejecting this assertion, CCI made the following remarks about the doctrine of essential facilities:

“the essential facility doctrine is invoked only in certain circumstances, such as existence of technical feasibility to provide access, possibility of replicating the facility in a reasonable period of time, distinct possibility of lack of effective competition if such access is denied and possibility of providing access on reasonable terms.”

Finally, CCI held that since private train containers can build such facilities at their own expense and considering that there is no barrier to the same, these facilities would not fall within the ambit of essential facilities.

Applying the Essential Facility Doctrine in Indian Law

As already noted, except in the Arshiya Case, CCI has not dealt directly with the doctrine of essential facilities. This leaves room for speculation as to how the doctrine can be applied in India. Moreover, the next step would be to circumscribe the implementation of the doctrine in case the doctrine is implemented in India.

• Refusal to deal

The doctrine should be dealt with in accordance with the principle of “refusal to deal”. However, while the concept of ‘refusal-to-deal’ presupposes the current business relationship between the dominant company and its rivals, such aspect is not taken into consideration in the case of the doctrine of essential facilities. To elaborate, A is a powerful company which has an agreement to grant B access to a specific facility (owned by A)  for the supply of certain goods. It is now probable that such a right could be denied or restricted by A in future. In the event of such a denial by the dominant enterprise (A), ‘refusal-to-deal’ will be applicable. On the other hand, the doctrine of essential facilities is generally enforced if new entrants are refused market entry by refusing the provision of essential facilities that are owned or operated by the already existing dominant entity.

• Strict Application of Competition Act, 2002

The definition of ‘abuse of dominant position’, under Section 4 of the Act, 2002, as well as its link with the essential facilities doctrine, is relevant in this connection. It is an established principle of jurisprudence in competition law that domination itself does not infringe competition law; the dominant firm is however conferred a special duty when it comes to other firms operating in the same domain/field/market. It cannot be considered as a source to  apply the doctrine in an unjust or unfair manner when it comes to the obligation of preventing misuse of dominant position. Experts have also cautioned that courts and CCI must be vigilant when interpreting Section 4 of the Act, especially in light of conflicting interpretation and implementation of the doctrine in  the United States of America and the European Union.

• Lessons learnt from EU and US 

It was noted that, in the US, the right to own a facility vests exclusively with the company who built the facility, stressing the distinction between the United States and Indian law. In India, on the other hand, the innovator is entitled to exclusive use and the facility is transferred to the government after the expiration of that privilege. This implies that India does not per se have a strict approach to the doctrine of essential  facilities as followed in the US. Moreover, it is easy to see that Indian competition law is more guided and influenced by the European law. Thus, there seems to be a possibility of Indian competition law falling in line with European law rather than US law. However, there is an unmistakable difference. These two jurisdictions today have set high expectations for implementing the doctrine, and have thus played a backseat role.

• Role of IP law 

The essential facilities doctrine in relation to the laws of the IP in a country is also discussed. It is worth noting that the Indian competition and IP legislation regime bestows a wide ambit of powers on the CCI, by virtue of the respective parts of the two statutes, to deal with patent law cases. It is also worth noting here that Indian competition law does not allow IP as a defence for the misuse of the dominant position by a market player. It is still understood that the unique privileges given by intellectual property are taken into account in competition law. Therefore, the essential facility doctrine will not be enforced as long as the right to use a patent is issued on fair terms. Instead, innovators should be equipped with the appropriate benefits for their inventions. 

Conclusion

The reluctance to enforce the essential facility doctrine is due to the challenge of deciding whether a facility is essential or  not  and the general responsibility of sharing it with others. Given that India encourages innovation, CCI cannot apply this doctrine in a liberal way. The simple way to use the competitor’s facilities by using essential facilities does not actually constitute antitrust.

Indian courts are advised to follow the examples of the United States and the European Union while dealing with such cases of restraint on trade wherein they do not necessarily have to refer to the essential facility doctrine directly. Moreover, Indian competition law is an independent law, and the doctrine can be used only in extraordinary cases where the express provisions of the respective legislative/regulatory framework do not by itself provide a sufficient opportunity to establish the misuse of the dominant position by a corporation.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.

LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join: