I. Introduction
Indian competition law, governed by the Competition Act, 2002 (“the Act”) has two major provisions that regulate competition in the market. Section 3 of the Act deals with anti-competitive agreements and holds all those agreements void which have appreciable adverse effect on competition or (“AECC”). Section 4 on the other hand prevents abuse of dominance by putting down certain instances which if done would result in abuse of dominance and thus, liable to be penalised by the Competition Commission of India, the primary regulatory and adjudicatory body of competition in the market.Section 4 for a very long time had been implemented according to the language of the Act. However, of late, a shift has been seen with the common trend being that abuse of dominance is being penalised only when it can be shown that there is an abusive act which is causing anti-competitive effects in the market.
The latest in this trend of decisions has been the recent National Company Law Appellate Tribunal (“NCLAT”) ruling in Google LLC & Anr. v. Competition Commission of India and Ors. (“Google LLC”) wherein the appellate tribunal while upholding the Competition Commissions of India’s penalty of INR 1337.76 Crore for abuse of dominance categorically stated that for adjudicating matters under Section 4, and finding an entity to be abusing its position of dominance, an effects-based approach had to be taken. This judicial pronouncement is a game changer as it has the potential to change the blueprint of competition law as practised in India.
This article traces the gradual shift in the interpretation and implementation of Section 4, and enumerates the reasons why the same is necessary and tries to answer whether an effects-based approach is the right call when it comes to Section 4 disputes.
II. Emergence of a new approach
Section 3 requires an analysis of whether a particular agreement has an AAEC. However, abuse of dominance under Section 4 is presumed to have occurred the moment some activity as enumerated within the section has taken place. In other words, the language of this section does not contemplate whether the act actually causes any detrimental effect on competition.
Accordingly, Section 4 has been traditionally interpreted in a formalistic or forms-based manner. Now, the genesis of the law contained in this section and any other similar law in other jurisdictions is Hoffmann-La Roche & Co. AG v. Commission of the European Communities. The European Court of Justice herein, held that there was an abuse of dominance due to Hoffman entering into exclusive purchasing agreements relating to some of its customers and offering others loyalty rebates. Thus, through this case it was established that certain acts were per se abusive and their commission would lead to the abuse of dominance.
In the last decade however, the trend has shown that courts across all jurisdictions have also been looking at the effect of abusive practices to penalise them. The European Commission, for example, came up with their Guidance on the enforcement of Article 82 (Now, Article 102, which is the EU equivalent of Section 4) which categorically emphasised the need to not apply the per se approach everywhere.
In Matrimony.com Limited v. Google LLC & Others, the minority judgement ruled that there was a greater need to analyse the economic implications of an act to consider themselves abusive. This, along with the NCLAT ruling in question along with multiple other cases however, is not reflective of any change within Section 4 of the Act which continues to remain the same. Interestingly, the Competition Amendment Act, 2023 does not incorporate calls for an effects-based approach despite recommendations for the same.
III. Implementing an effects-based approach in India
There has been a series of cases where the effects-based approach has been used. In the Kapoor Glass Pvt Ltd v. Schott Glass India Private, Section 4 was invoked due to Schott Glass’ unfair pricing of its glass tubes. The CCI considered this behaviour abusive because Section 4(2) explicitly prohibits discriminatory or predatory pricing. However, the Competition Appellate Tribunal noted that the mere existence of discriminatory pricing does not necessarily indicate abuse of dominance. The impact of such behaviour on the market and its effect on competition must also be taken into account. In other cases, the CCI has deemed a practice abusive only after assessing its anti-competitive impact on the market, as seen in the Intel Corporation and Board of Control for Cricket in India cases.
Nevertheless, there have been instances where the CCI has made errors in its conclusions, disregarding the pro-competitive effects of certain business strategies, as there is no explicit rule requiring consideration of a practice’s impact on the market. The Rico Industries and Adani Gas Limited cases exemplify this. Both cases involved similar “take-or-pay” and “minimum guaranteed off-take” terms. In the Rico Industries case, the CCI determined that the take-or-pay provision in gas supply agreements is necessary, as it shares the risk between buyers and suppliers. Without this condition, customers could consume less gas than they initially committed to, jeopardising the supplier’s financial investment. Therefore, a take-or-pay clause alone cannot be considered abusive in a gas supply agreement. However, in the Adani Gas Limited case, a comparable minimum guaranteed off-take agreement was deemed anti-competitive and the supplier’s behaviour abusive, considering its impact on the buyers’ company.
IV. Barriers and impediments
The effects based approach is theoretically more in line with new economic theories, like those in line with the Chicago school and US Antitrust, suggest that the exclusionary conducts of the dominant firms which are defined as abuse under the formalistic approach are actually efficiency and consumer welfare enhancing and thus, deserve to be not considered abusive. However, implementing this in the right manner is very important. Since the idea of “effects” is very subjective, the assessment of the same will be complex and requires proper economic analysis. It is very likely that different experts or authorities may reach different conclusions, leading to inconsistent outcomes and uncertainty for businesses.
Proving anti-competitive effects in itself are difficult when the same will manifest in the long-term. It does not sit well with adjudicating authorities to declare abusive behaviour on assumptions and so, just looking at the effects, which may or may not happen is not enough.
While the effects-based approach is increasingly being adopted, there is a lack of clear legal standards for determining what constitutes anti-competitive effects. The same needs to be adopted to ensure consistent application across all cases. Further, conducting rigorous economic analysis to assess the effects of abusive practices requires significant resources, including access to data, expertise, and time.
There is also a risk of under-enforcement. Anti-competitive effects might not be immediately visible, and by the time they become glaringly problematic, they might have already eliminated competition from the market.
V. Suggestions
Despite the focus on an economic way of analysis of the effect, a core issue remains unsolved. A Section 4 analysis in any case is firstly initiated with a market analysis wherein market share plays a huge factor in determining the final outcome. Latest economic theory, however, suggests that a focus on entry barriers in the market is the need of the hour. This concept, known as the market leaders theory essentially focuses on the role of entry barriers in the market to determine behaviour of entities who are more likely to pursue aggressive tendencies when market barriers are high so as to protect themselves in the market. Thus, this theory advocates for intervention by authorities only when market barriers are high in the market and then do an effects analysis because only then would aggressive tendencies of entities have a harmful effect on the consumers.
Addressing these issues requires careful consideration and refinement of the effects-based approach. Clear guidelines and legal standards should be established to provide more certainty and consistency in the assessment of anti-competitive effects. Competition authorities should also invest in building their capacity in economic analysis to effectively evaluate the impact of abusive conduct. Collaboration and harmonisation efforts among competition authorities can help promote consistent application of the effects-based approach across jurisdictions, reducing legal uncertainty for businesses
Conducting comprehensive market studies to identify entry barriers and evaluate the competitive landscape would be beneficial. Such studies would provide valuable insights into market dynamics and inform the appropriate level of intervention in abuse of dominance cases. The CCI should enhance its expertise in economic analysis and involve economists in competition law cases. Economic analysis is crucial for understanding complex market dynamics and evaluating the effects of specific business practices.
Lastly, revising the Competition Amendment Act, 2023 to explicitly incorporate the effects-based approach in Section 4 would provide a solid legal foundation for adopting a more nuanced and economically informed enforcement strategy.
VI. Conclusion
The interpretation and application of Section 4 of the Indian Competition Act, which governs abuse of power, has shown a gradual shift towards an effects-based strategy. Recent judicial rulings have backed sanctions for power abuse and stressed the need of an effects-based approach, most notably the landmark NCLAT decision in “Google LLC”. This modification has the potential to modify Indian competition law. Section 4 was previously applied using a forms-based technique and considered certain behaviour as abusive in and of themselves. However, courts throughout the world, including those in the European Union, have become increasingly concerned with the real-world consequences of abusive practices, which have been shown to be beneficial for the consumer, who are the most important stakeholder in any market.
While, the European Commission’s Guideline on dominance abuses emphasises the need of an effects-based strategy, it fails to tackle the real problem in line with latest economic theories. This shows the need to not only reorient how competition law works but to do so with thorough economic analysis.
The application of an effects-based approach has not been uniform. To make India a forerunner in the business-oriented world and promote ease of doing business, wide ranging reforms are the need of the hour. By using an effects-based approach and applying the suggested remedies, Indian competition law may be able to better address the difficulties raised by dominating businesses’ unfair practices. This plan would strike a balance between encouraging competition, safeguarding consumer welfare, and recognising the potential benefits of pro-competitive action.