This article is written by Adv. Meenal Garg, Punjab and Haryana High Court, Chandigarh.
The definition of the essential facilities doctrine (hereinafter “the doctrine”) varies greatly across jurisdictions. However, in simple terms, the doctrine implies that a player, who is a monopolist or in a dominant position, in the market, is compelled to share its facilities with other players to promote healthy competition. In other words, this doctrine means that any facility that is generated by a player if not shared with its competitors, will act as a barrier for entry in the relevant market. This doctrine assumes importance because if denial of bare minimum facilities or ‘essential facilities’ will result in wrongful denial to new entrants which in turn would hamper healthy competition.
Status of the Doctrine in the U.S. and E.U.
Position in the U.S.
The origins of the doctrine can be traced in American case law. In the case of United States v. Terminal Railroad Association, the US courts held that exclusive control over every railroad to St. Louis would be a restraint on trade. The rationale behind this judgment was that since no-member could gain entry or exit into St. Louis without using these ‘facilities’, gave such railroads a character of ‘public facility’ over which no one person can exercise monopoly.
Ever since its inception, the doctrine has not found much appreciation in U.S. Courts. Commentators have opined that ‘the essential facility doctrine has lost popularity in the US….’ This is in light of the popular case of Verizon Comms., Inc. v. Law Offices of Curtis V. Trinko (hereinafter “Trinko”) in which the U.S. Supreme Court has hinted that the court has never expressly recognised the ‘essential facilities’ doctrine. In this case, an action was brought against Telecom Company Verizon alleging that Verizon had failed to share its network resources for entry into market. The U.S. Supreme Court refused to expressly recognize the essential facilities doctrine and held that the same would be applicable only if no statutory provision is available. In the present case, since the dispute was covered under the Telecom Act, the court refused to apply the essential facilities doctrine.
It is worthwhile to mention here that the doctrine was originally developed to establish liability under Section 2 of the Sherman Act which prohibits monopolization of Trade. But after the Trinko case, there is no primary role of the doctrine under U.S. law and it has been accorded a subsidiary role to establish liability under the Sherman Act.
Position in E.U.
As compared to the U.S., the essential facilities doctrine has found greater acceptance in E.U. The doctrine was expressly first dealt in the Sealink Case. In this case, Sealink was the port authority of the Holyhead port which was providing ferry services between the United Kingdom and Ireland. Only the Holyhead port was providing such services and there was refusal to provide access to port services to B&I. While allowing such access, the Commission observed:
Even where the operator of an essential facility is required to provide access of non-discriminatory terms, interim measures to enable a new competitor to enter a market require stronger justification than measures maintaining the situation of an already established competitor.
Jones and Sufrin have opined that the doctrine has found recognition in EU in lieu of liberalization. They opine that in absence of the essential facilities doctrine, it would not have been possible to duplicate facilities required in sectors like telecom etc. which previously enjoyed the status of statutory monopolies. Thus, in such cases, the new entrants in these sectors could avail the option of this doctrine to gain access to those facilities which were previously exclusively under the control of the state.
From the above state of affairs, it is clear that the doctrine was liberally applied by EU as a measure of necessity. Presently, even the EU courts have raised the standards of determining an essential facility particularly in the infamous case of Oscar Bronner GmbH & Co. KG v. Mediaprint. In this case, Mediaprint, a newspaper publisher with market share of about 50% had developed a unique home delivery paper distribution network. On the other hand, Oscar Bronner who had market share of 4% alleged that he is entitled to access the distribution network of Mediaprint which is an essential facility for distribution of newspaper. The court while setting high standards of applying the doctrine held that the distribution network is not an essential facility as there are other means of distributing newspapers via shops, post offices etc. This ruling implies that holding a dominant position is no longer sufficient to establish liability under this doctrine and other factors like indispensability of the facility etc. need to be taken into account.
Thus, it can be said that the contours of the doctrine have been considerably narrowed down on both sides of the Atlantic. The visible implication from the above discussion is that the two jurisdictions with the most developed competition law jurisprudence across the globe have not had a very pleasant experience with the doctrine.
Doctrine of Essential Facilities and India
Silent Stance of CCI
Competition law in India is still at a nascent stage. While the Indian Supreme Court is yet to apply the essential facilities doctrine in practice, there is ample scope in Indian competition law for the application of this doctrine. For instance, Sec. 4(2)(c) of Competition Act, 2002 (hereinafter “the Act”) makes it illegal for an enterprise to abuse its dominant position that results in denial of market access. The issue has come up before the Competition Commission of India (hereinafter “CCI”) in popular cases like Shamsher Kataria vs. Honda Siel Cars India Ltd, Turbo Aviation Pvt. Ltd. vs. Bangalore International Airport Ltd., however, the Commission has not expressly ruled upon the same.
An interesting aspect with respect to India is that most essential facilities are governed by some statutory or regulatory framework. For instance, the National Telecom Policy, 1994, which has been in the limelight for quite some time, provides for framework for licensing of the spectrum which is an essential facility for the telecom sector. Similarly, there exists framework for licensing in sectors like pharmaceutical, oil and gas, electricity etc. Thus, by applying the Trinko rule, the doctrine cannot be applied in cases covered by some statutory framework which have to be decided in terms of the legislative policy.
The concept of essential facility was first considered by CCI in case of Arshiya Rail Infrastructure Ltd. vs. Ministry of Railways (hereinafter “Arshiya case”). In this case, the contention was that CONCOR, a PSU, was denying access to terminals and sidings, which were exclusively owned by it to private container train operators. The informants had argued that such facility was ‘essential’ infrastructure facility for freight services. CCI while denying such contention, made the following observations with respect to essential facilities doctrine:
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, the Commission held that such facilities are not essential facilities because the same can be developed by informants (private entities) at their own cost as there is no barrier on the same.
Applying the Doctrine in Indian Law
As already seen, CCI has not expressly dealt with any case of the doctrine except in Arshiya case. This leaves room to speculate as to how the doctrine can be applied in India. Furthermore, assuming that the doctrine is applied in India, the next step would be to circumscribe the application of the doctrine.
- Refusal to deal: It is possible that the doctrine may be dealt under the norm of “refusal to deal”. However, the difference between refusal to deal and the essential facilities doctrine is that while the former presupposes existing business relationship between the dominant firm and its competitors, there is no such prerequisite in the latter. To elaborate, suppose A is a dominant firm having the arrangement to provide access to B to a particular facility (owned by A) for say supply of some goods. Now it may so happen that sometime in future such a right is refused. Such a case would be covered in case of refusal to deal by a dominant firm. On the other hand, essential facilities doctrine is usually applied in cases where new entrants are denied access to the marketplace by denying provision of essential facilities owned or controlled by a dominant entity.
- Strict Application of Competition Act: At this juncture, it is important to discuss the concept of ‘abuse of dominant position’ as defined under Sec. 4 of the Act and its relationship with the essential facility doctrine. It is an accepted principle of competition law jurisprudence, that dominance by itself is not a violation of competition law; however, a special responsibility is conferred upon the dominant firm with respect to other firms. Such special responsibility of not abusing dominant position should not be taken as the source for liberally applying the doctrine. Lahiri and Sivakumar have opined that the courts, as well as CCI, need to exercise precaution while interpreting the open language of Sec. 4. The evidence for this argument can also be found in the unpleasant experiences of U.S. and E.U. discussed earlier.
- Lessons learnt from EU and US: Highlighting the difference between U.S. and Indian law, Malik has opined that in the U.S., the right of ownership of a facility vests exclusively with the enterprise that has created the facility. On the other hand, in India, the innovator enjoys exclusive right of usage and after expiry of such right the facility is transferred to the government. This implies that the strict approach towards the essential facility doctrine as adopted in the U.S. is not per se applicable in India. Furthermore, it can be easily seen that the Indian competition law is more influenced by the European law and thus, there is a likely possibility that Indian competition law may move on the lines of European law as opposed to the norms set by American law. This, however, is a distinction without a difference. Today, both these jurisdictions have set high standards for the application of the doctrine, thereby according it a backseat role.
- Role of IP law: Quite often, the essential facility doctrine is discussed with respect to the IP laws of a country. Ravichandran while commenting upon the Indian competition and IP law regime has opined that the relevant sections of the two laws confer broad powers on the CCI to deal with patent law cases. It is noteworthy to mention here that Indian competition law does not provide an IP defence to abuse of dominant position. However, it is an acknowledged fact that competition law is framed keeping in mind the special rights granted by Intellectual Property. Therefore, as long as the right to use a patent is granted on reasonable terms, the essential facility doctrine will not come into play. This is in lieu of the fact that innovators should be given due benefits for their innovations.
- Formulation of Regulations: Bajaj and Sharma have opined that until now the doctrine has been invoked by CCI on an ad hoc basis and opine that the Commission should exercise its power under Sec. 64(1) of the Competition Act to lay down a policy regarding the same. In response, while the author agrees with such a solution, it is imperative that CCI does not lose sight of the fact that the doctrine should be applied only in extreme situations where other provisions of the Competition Act do not apply.
The reluctance shown towards the application of the doctrine is due to the difficulty in determining whether a facility is essential or not and whether there exists a general duty to share this facility with others. Considering the fact that India is promoting innovation, CCI cannot liberally exercise this doctrine. To paraphrase Muller and Rodenhausen, the easy way of using the competitor’s facilities by taking recourse to essential facilities doctrine is not necessarily the antitrust way.
It has been opined that Indian courts should follow the examples of U.S. and E.U. and should generally refrain from expressly invoking this doctrine. Furthermore, Indian competition law is a self-sufficient law and it is only in exceptional cases, where the express provisions do not provide a satisfactory solution, the doctrine can be employed to discharge the initial burden of proving abuse of dominant position by an enterprise.
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