E-Commerce Competition Enforcement Guide

India – Competition Commission of India

07 December 2018

Competition Commission of India

Introduction

Rapid developments in the e-commerce and digital markets provide substantial opportunities for enhancing competition, efficiency and welfare. These markets have expanded the boundaries for trade and have facilitated the emergence of new business models. As a result, consumers benefit from an expanded choice of suppliers, goods and services, as well as a greater ability to compare prices and find the products and suppliers that best meet their needs.

The Indian economy is moving rapidly towards a digital first economy. A blend of policy initiatives and technological innovation has led to the rapid development of India’s digital infrastructure. There has been a significant increase in data consumption along with a rise in internet penetration, with 4G usage reaching approximately 11GB/user/month in 2016.[2] The number of internet subscribers has risen from 21 million in 2011 to 429 million in 2017.[3] The increasing mobile and internet penetration, advanced shipping and payment options, m-commerce and the push into new international markets by e-businesses have led to unprecedented growth in the e-commerce sector. Consequently, the e-commerce sector has grown steadily from US$14 billion in 2014 to US$39 billion in 2017 and is expected to further reach US$200 billion in 2026.[4] Moreover, the online retail market in India is estimated to be worth US$17.8 billion in terms of gross merchandise value (GMV) as of 2017 and it constitutes 2.5 per cent of total retail in 2017.[5] Thus, the e-commerce sector is pushing the traditional boundaries of the Indian retail industry by reaching previously untapped consumer segments.

Having evolved rapidly thus far, the growth of the e-commerce sector in India has witnessed the substantial rise of start-ups.[6] The government of India has initiated many policies to enable the growth of such start-ups. These include the ‘Startup India’ initiative, with the creation of a corpus fund of 100 billion rupees and other benefits such as tax holidays, tax rebates etc. The entry of start-ups appears to have disrupted the business models of some of the incumbent firms, whose response has been uninspiring. This has been reflected in the remarks of retail industry pioneers who, rather than innovating, have offhandedly dismissed the commercial viability of the business models employed by these start-ups.

In some cases, this difference in perspective has resulted in antitrust litigation. There have also been instances where e-commerce businesses that use platform technologies have indulged in practices that have led to market foreclosure, the distortion of the level playing field and discriminatory conditions. The cases discussed below highlight the enforcement practice of the Competition Commission of India with regard to the e-commerce and digital sector in India.

Anticompetitive agreements

The Commission has had an opportunity to examine issues related to vertical agreements in a few cases. In Ashish Ahuja v. Snapdeal,[7] the informant alleged that Sandisk and Snapdeal had entered into an agreement to prevent the informant from selling certain products of Sandisk. There was an allegation that such an arrangement violated Section 3 of the Competition Act, 2002 as the conduct of the opposite parties intended to force the informant to become an authorised dealer of Sandisk. No specific provision of Section 3 was alleged to have been infringed. The Commission held that:

The insistence by SanDisk that the storage devices sold through the online portals should be bought from its authorised distributors by itself cannot be considered as abusive as it is within its rights to protect the sanctity of its distribution channel.

In Mohit Manglani v. Flipkart,[8] the informant alleged that certain e-commerce entities and product sellers entered into ‘exclusive agreements’ to sell a selected product exclusively on a selected portal to the exclusion of other e-portals or physical channels. This was alleged to have caused an appreciable adverse effect on competition (AAEC). The Commission held that such agreements have to be evaluated on the touchstone of the factors listed under Section 19(3) of the Act, and it is unlikely that exclusive agreements between a manufacturer and an e-portal will create any entry barriers since the market seems to be growing with the uninhibited entry of new e-portals.

In the case of M/s Jasper Infotech Private Limited (Snapdeal) v. M/s KAFF Appliances (India) Pvt Ltd,[9] the Commission ordered an inquiry into the practice of resale price maintenance that appeared to have been conducted by the opposite party with respect to the sale of its kitchen appliances. It should be noted that there was no agreement between the opposite party and the informant. Rather, there was a notice or email from the opposite party to the informant, warning the informant that if the market operating price of the kitchen appliances was not maintained then the opposite party would not allow the sale of its products on the marketplace. The Commission ordered an investigation by the Director General as it found the email of Kaff Appliances to be prima facie in violation of the provision relating to resale price maintenance.[10] The matter is presently under investigation. There was, however, no investigation directed by the Commission with respect to the allegation of ‘refusal to deal’ when the opposite party refused to honour warranties of the products sold on the informant’s marketplace. The Commission appears not to view the termination of warranty as something that requires an investigation.

Abuse of dominance

Most cases dealing with abuse of dominance allegations pertain to predatory pricing. The Commission has come across such allegations filed by traditional radio taxi businesses against online ride-sharing cab aggregators.

In the Fast Track case,[11] the Commission first rejected the argument of the opposite party that it was only a technology software service provider and not a radio taxi service provider. Accordingly, it was clubbed together with other radio taxi service providers. The Commission observed that despite a market share that fluctuated among 60 per cent to 75 per cent, the opposite party was not dominant since its competitor, Uber, was competing aggressively with it for both drivers and riders. The Commission noted that ‘the incumbents were left catching up with a new entrant armed with a new technology which allowed it to arrogate to itself a large unmet demand’. It therefore held that the erosion in the informants’ market shares was more attributable to the expansion of the consumer base in the market than them being deprived of the demand that they were serving before. With regard to market share, the Commission emphasised that in technology-driven markets, it is quite common that, during the early stages of a new industry, successful firms have high market shares during a period, only to be displaced by a rival that makes a disruptive innovation. The Commission, thus, does not follow a market-share based static view in assessing dominance. A whole host of other factors, including entry barriers and competitors’ strength, are taken into account in the determination of dominance. The Commission, while assessing the alleged dominance of the cab operator in this case, considered that the competitive process in the relevant market was still unfolding; that the market was growing rapidly; that effective entry had taken place; that the network effect was not strong enough to deter entry; that there existed countervailing market forces; and that the nature of competition in the particular market was innovation driven.

In the WhatsApp case,[12] it was alleged that WhatsApp was abusing its dominant position in the relevant market by introducing a privacy policy that compelled its users to share their account details and other information with Facebook. The Commission noted that WhatsApp provided the option to its users to ‘opt out’ of sharing user account information with Facebook within 30 days of agreeing to the updated terms of service and privacy policy. It appears, therefore, to have sanctioned the proposition that as long as there exists a mechanism in an agreement to re-examine the obligations cast on a contracting party, that contracting party cannot be said to have been ‘compelled’ to act in a particular manner.

In Matrimony.com Ltd v. Google LLC and others,[13] Google was found to have abused its dominant position in online general web search services in India leading to a penalty of 1.35 billion rupees.

The Commission considered the ranking of ‘universal results’, namely groups of results for a specific type of information. It found that the ranking of universal results prior to 2010 was pre-determined to trigger at certain fixed positions on the search engine result page (SERP) instead of by their relevance. It held that that practice was unfair to users and in contravention of Section 4(2)(a)(i) of the Act that pertains to the imposition of unfair conditions by a dominant enterprise. The Commission also considered ‘commercial units’, namely results that are paid for and are set apart from the normal search results and are labelled ‘sponsored’. In particular, the Commission looked at commercial units relating to airline flights, which contained links to Google’s specialised search options and services relating to airline flights. It found that the prominent display of such commercial flight units by Google on the SERP with links to Google’s own specialised services contravened Section 4(2)(a)(i) of the Act. Lastly, it held that prohibitions imposed under negotiated search intermediation agreements on publishers were unfair as they restricted the choice of those partners and prevented them from using search services provided by competitors, in breach of Section 4(2)(a)(i) of the Act. The Commission also observed that Google was leveraging its dominance in the market for online general web search to strengthen its position in the market for online syndicate search services. Competitors were denied access to the online search syndication services by such conduct.

The Commission noted that product design is an important and integral dimension of competition and any undue intervention in designs may affect legitimate product improvements. It also highlighted the special obligations expected of dominant undertakings like Google. In computing monetary penalty, the Commission only took into account Google’s revenue from its Indian operations. However, it observed that the concept of relevant turnover could not be applied to a technological platform such as Google as it was applied in the context of a conventional multi-product company. In a two-sided market, the search side is free whereas the other side is monetised through advertisements. In such a case, the Commission held that Google’s entire platform had to be taken as one unit and the revenue generated from it seen as a whole.

It is important to note that the Commission has taken a nuanced approach in determining the relevant market and defines it on a case-by-case basis. In determining the relevant market in cases concerning e-commerce entities, the Commission has in the past held that the e-commerce platform was just another medium to sell or provide goods and services and could not be treated as a separate relevant market in itself. However, in certain cases concerning radio taxi aggregators, the Commission has observed that radio taxis constitute a separate market from ordinary taxis. Therefore, various factors concerning consumer preferences can determine whether or not a product/service, when sold/provided on an e-commerce platform, will constitute a separate relevant market.

Conclusion

The Commission, as seen in its orders, continues to maintain a vigilant attitude on the digital and e-commerce market, considering that it is still evolving. It is cognisant of the fact that any regulatory overreach could have a deleterious impact on nascent markets. ‘Type 1 errors’ or ‘false positives’ (in other words, inferring the existence of something that is not there) are not altogether rare in antitrust because it is sometimes difficult to distinguish anticompetitive conduct from pro-competitive conduct. However, the Commission’s reticence in this area stems from the fact that it is easier to correct abusive conduct when detected, as compared to rectifying and undoing a judicial error. The Commission is therefore adopting a cautious approach and it accepts that a one-size-fits-all approach does not work. A nuanced assessment, based on the facts of the case and the market and technology in question, is the strategy that the Commission has adopted. The Act allows for such a case-by-case holistic analysis, providing the flexibility to attune the case analyses to the sector and issue at hand within a broad prescribed framework.


Notes

[1] Smita Jhingran is the Secretary of the Competition Commission of India.

[2] Nokia India Mobile Broadband Index Report 2018.

[3] TRAI Performance Indicator Report 2017.

[4] IBEF Report, 2018.

[5] IBEF Report, 2018.

[6] It is estimated that there are 8776 start-ups in India as on 3 April 2018 according to the Department of Industrial Policy & Promotion.

[7] Order dated 19 May 2014 in Case No. 17 of 2014.

[8] Order dated 23 April 2015 in Case No. 80 of 2014.

[9] Order dated 29 December 2014 in Case No. 61 of 2014.

[10] Competition Act, 2002, Section 3(1), (4)(e).

[11] Fast track Call Cab Pvt Ltd and Meru Travel Solutions Pvt Ltd v. ANI Technologies (order dated 19 July 2017 in Case No. 06 and 74 of 2015).

[12] Vinod Kumar Gupta v. WhatsApp (order dated 1 June 2017 in Case No. 99 of 2016).

[13] Order dated 31 January 2018 in Case Nos. 07 & 30 of 2012.

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