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Need for Indian competition law to curb exploitative behaviour in the digital economy

July 22, 2021
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This article is written by Dnyaneshwari Patil from RTMNU Babasaheb Ambedkar College of Law, Nagpur. In this article, she discusses the Indian Competition Act, 2002, its enforcement in curbing anti-competitive behaviour in the digital economy, and the challenges faced by it. 

Introduction 

In India, every day, internet-based users are increasing drastically, primarily young users. In response to COVID-19, the Government of India has restricted mobility, thereby accelerating the growth of India’s digital market. Easy access to the internet has become possible due to mobile devices. India is the second-largest market for mobile devices. Thus the digital economy includes the trade of goods, services, and data through e-commerce. The digital economy is more dynamic than the traditional economy as it has innumerable ways of reaching the end-users and delivering digital services. The digital economy provides a high intensity of competition as the distribution costs are less due to the cutting of intermediaries. It allows the upstream supplier to directly sell to the customer without the entry of retailers, making it cheaper than traditional markets and thus benefits the small businesses. 

The market needs to be deregulated, and the players should be free to compete to achieve the best of the market. Healthy competition between the players ensure innovations into the field and lower prices of the product/service/data. However, there are instances when the market’s behaviour hinders healthy competition. Thus to check on such activities, Competition Act, 2002 was enacted with the aim that markets remain contestable and work in the interest of the consumers. Tracing back the history of competition law, in 1969, the Monopolies and Restrictive Trade Practices (MRTP) Act was enacted. After a few decades, due to liberalization, the need for new legislation was felt, and hence the Competition law, 2002, was enacted. To achieve the objective of the 2002 Act, the Competition Commission of India (CCI) was established by the Central Government on 14th October, 2003.

Indian Competition Law – an overview

Several times, some enterprises would indulge in anti-competitive practices for short-term gains and nullify the competition’s benefits. Therefore the government of India set up a competition authority and developed the Competition Act, 2002 to deal with the existence and regulation of competition and monopolies. Through the regulations of the Act, specific objectives were to be achieved:

Anti-competitive agreement

If an agreement is meant to cause an appreciable adverse effect on the competition, they are scrutinized and considered void. If an enterprise, persons, or associations of enterprises or persons, including cartels, enter into the agreement and if that agreement increases efficiency in production, supply, distribution, storage, acquisition, or control of goods or provision of services, then they are not assumed to cause adverse effects. However, the agreement is caused to have an appreciable adverse effect on the competition if the provision of the agreement:

  1. Directly or indirectly determines purchase or sale prices; 
  2. Limits or controls production, supply, markets, technical development, investment, or provision of services; 
  3. Shares the market or source of production or provision of services by way of allocation of the geographical area of the market, or type of goods or services, or number of customers in the market or any other similar way; or 
  4. Directly or indirectly results in bid-rigging or collusive bidding.

However, the Act recognizes intellectual property rights. Therefore, it does not allow anyone to infringe the intellectual property rights, and imposing certain conditions to protect such rights does not come under the ambit of an Anti-competition agreement. Therefore, trademarks, copyrights, patents, geographical indicators, industrial designs, and semiconductors are excluded from the “anti-competitive agreements”.

Abuse of dominant position 

A dominant position of an enterprise allows them to work independently of all competitive forces in the market or affects its consumers or competitors in its favour. Thus if an enterprise of strength abuses its position in the market by directly or indirectly putting unfair or discriminatory conditions on the purchase or sale of products or services or predatory price condition, other acts which constitute abuse of dominant position as enshrined in the Act are limiting or restraining the production/ provision of goods/ services or the market, or limiting/restricting technological development to the prejudice of the customers, or indulging in such activities which would result in denial of market access or introducing such clauses which are irrelevant to the subject matter, or by abusing the dominant position to enter one relevant market to deny access to another relevant market. 

Combination 

Combinations such as a merger, acquisition, and amalgamation are under the scrutiny of the Act if they are above a certain threshold. The threshold limits are mentioned below:

  1. The value of the Combined assets of the firms amounting to Rs 1000 crore or turnover of Rs 3000 crore. In the case of parties having assets abroad, the threshold limit for the value of assets amounting to USD 500 million, including at least Rs 500 crore in India, or turnover of USD 1500 million with at least Rs 1500 crore in India.
  2. If the group of enterprises in India, who are acquiring, then the threshold limit of the value of assets is more than Rs 4000 crores and turnover of Rs 12000 crore, if it is a multinational then the threshold limit of the value of assets is USD 2 billion including Rs 500 crore in India or turnover of USD 6 billion with Rs 1500 crore in India.
  3. Combinations are considered void if they would cause or are likely to cause an appreciable adverse effect on competition within the relevant market. If one intends to enter into a combination, then the person or the enterprise has to inform the CCI of such intention and provide details of the same, and then the CCI, after due deliberation, would give its opinion about the proposed combination to approach the commission for this purpose.  

Striking a balance between enforcement and preservation of the competitiveness of the market

The Competition Commission of India promotes and sustains competition in the market for the interest of consumers. It aims to control and prohibit antitrust agreements, check the abuse of the dominant position, and regulate mergers and acquisitions.

The digital markets are growing immensely and have led to the emergence of new trends and development. This has resulted in an excess of legal issues to arise including alleged anti-competition and Big Tech Firms are already facing investigation by the CCI. There are numerous probes filed against Google:

Deep discounting has been controversial in India after the entry of the e-commerce market like Flipkart and Amazon. These e-commerce industries are engaging in predatory pricing. Thus a complaint was filed by a small-sized retailer, Delhi Vyapar Mahasangh, alleging that the giant e-commerce, Amazon and Flipkart, were giving preferences to certain sellers which were directly or indirectly controlled by them. The preferential treatment was in the form of deep discount, preferential listing, etc. Thus the commission observed that the competition was influenced in favour of certain sellers and brands through higher discounts and preferential listing. Hence, the CCI observed that the certain arrangement was in contravention of Section 3(1) read with Section 3(4) of the Act.

In an interim order passed by CCI directing Make My Trip and Goibibo to relist the properties of FabHotels and Treebo. In a recent allegation by the FabHotels and Treebo that the Make My Trip and Oyo hotels entered into a confidential agreement to give preference to OYO on its platform. Thus the CCI observed that it is against the provision of the Competition Act, 2002.

During the pandemic, people found themself connected through social networking sites. These social networking sites have gained drastic importance in today’s world. However, big companies like Facebook are found to indulge in anti-competitive practices. In the recent case against Whatsapp, the CCI ordered a probe into WhatsApp’s new Privacy Policy. The anti-trust regulator expressed that the users have to accept the new privacy policy, which is unilaterally dictated and termed as ‘take-it-or-leave-it’ policy by the dominant messaging platform. The CCI held that the users were not given a choice to object to the new terms nor opt-out of specific sharing terms, and therefore the terms appear to be unfair and unreasonable. CCI also observed that the personalized data sharing with the Facebook companies was “neither fully transparent nor based on the specific, voluntary consent of users”. Therefore such conditions dictated upon the users would amount to an imposition of unfair terms and conditions and contradict the provision of the Competition Law, 2002.

Anti-competitive behaviour of firms in the digital economy

Data being the workhorse of the digital economy and the currency which provides users with free online services. The digital markets use this data to provide us with personalized promotions, coupons, and advertisements. Network effects give the larger businesses access to data, thereby restricting the small businesses and startups the similar access. Thus it acted as a de-facto barrier to the digital market. 

Data privacy is one of the challenges we have to face due to the growing digital economy. Cambridge Analytica was indulged in illegally obtaining Facebook data. Around 87 million Facebook user’s data was leaked. This data has the potential to be misused. Thus the Cambridge Analytica and Facebook controversy brought the focus on data privacy. 

Network effects have the potential to create dominance. If the dominance is established, the entry of new businesses becomes problematic as it had happened in the google online web search services. The search engine service needs to be able to ‘crawl’ and index the data, and Google had a head start in this. Collecting a large quantity of data to build a search engine upon which an algorithm can be built and improved, the cost of crawling the entire internet acts as a barrier for the new entrant. 

Deep discounting and predatory pricing are some of the challenges the CCI is facing, especially when giant companies like Flipkart and Amazon came into the scene. Although, there is no relevant provision under the Act, 2002 to check on such issues, and they put predatory pricing under the provision of abuse of dominance. However, if there is not an abuse of dominance, the CCI would not interfere in the matter. Therefore a suitable regulatory mechanism should be devised by the CCI. 

Conclusion

The evolution of technology is happening speedily. The digital environment is dynamic. To cope up with this, one has to be up to date. Similarly, the laws have to adapt themselves to the emerging challenges in the digital world. The giant tech companies are continuously growing and their influence all over the world is inevitable. They have started to impose arbitrary conditions on the customers. The privacy of the data in today’s world cannot be guaranteed. Startups and small businesses are already facing the wrath of the big tech companies, who are preventing their entry into the field. Conservation of healthy competition in the digital economy has now become a new challenge for the world. Therefore, the laws should be firm, and the enforcement should be perfect to protect the competitiveness of the environment. 

References


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