INDIAN UPDATE – Unilateral Conduct: The Competition Commission of India’s Enforcement Priorities
The following article Unilateral Conduct: The Competition Commission of India’s Enforcement Priorities analyses the principles and trends enunciated by the Competition Commission of India (“CCI”) in the abuse of dominance cases dealt with by the CCI to date.
Introduction: Legal Framework
The Competition Act, 2002 (“Act”) (as amended) is the principal legislation governing competition law in India. The provisions of the Act dealing with abuse of dominance (the operative provision being Section 4 of the Act), came into effect from 20 May 2009.
An abuse of dominance occurs when a dominant entity substantially prevents or lessens competition, by taking advantage of its peculiar position of strength in a particular market. Although an abuse is not defined under the provisions of the Act, Section 4(2) provides a list of abuses which are prohibited.
In India, determination of ‘dominance’ is not a function of any set arithmetical parameters or pedantic norms. Instead, dominance of an enterprise is to be judged by its power to operate independently of competitive forces or to affect its competitors or consumers in its favour. Thus, the test is more qualitative in nature than quantitative, involving multi-faceted analysis.
Scope of the Act
Section 4 of the Act prohibits an abuse of a dominant position by any “enterprise” or “group”. Therefore, by implication, the concept of collective dominance is not yet envisaged under Section 4 of the Act, although the Competition (Amendment) Bill, 2012 which is currently pending before the Indian Parliament envisages the concept of collective dominance.
Section 4(2) of the Act lists certain acts which are presumed to be an abuse, if the dominant position of the enterprise, indulging in such conduct, is established:
(a) directly and indirectly imposing unfair or discriminatory conditions or prices (including predatory price) for purchase or sale of goods or services, unless such conduct is adopted to meet the competition;
(b) limiting or restricting production of goods or services, technical or scientific development;
(c) indulging in practices resulting in denial of market access in any manner;
(d) making conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts (i.e., tying and bundling); or
(e) using a dominant position in one relevant market to enter into or protect other relevant market.
Therefore, strict liability is imposed by law, violations are to be adjudged under the ‘per se’ rule and there is no requirement to assess the actual adverse effect on competition in the market, if any. A limited exception to this is available in relation to imposition of unfair or discriminatory condition or price in relation to purchase or sale (including predatory price) where the dominant enterprise may plead that their behaviour was objectively justified in the particular circumstances i.e. that the unfair or discriminatory conditions or prices (including predatory prices) were adopted “to meet competition”.
However, an analysis of the abuse of dominance cases adjudicated by the CCI to date reveals that the CCI has so far avoided delivering orders based on the concept of ‘per se’ illegality by setting very high standards for establishing dominance and defining the contours of the relevant market. In reality, the CCI does embark upon a rule of reason analysis by assessing the strength in the relevant market of the party complained against and thereby determining the effect that any alleged abusive conduct might have on competition in the market.
Interestingly, the Act deals with both: exclusionary as well as exploitative abuses. Unlike some other jurisdictions, purely exploitative conduct, even if it has no exclusionary effect, can and has been scrutinized under the abuse of dominance provisions of the Act (for instance, in the DLF Order). The Act therefore, continues, to perpetuate the legacy of the erstwhile Monopolies and Restrictive Trade Practices regime by allowing purely exploitative consumer disputes to be litigated within the ambit of competition law.
Stages involved in an Abuse of Dominance Investigation
A dominant position held by an enterprise or a group is not per se prohibited; however, abuse of such dominance by an enterprise or a group attracts the provisions of Section 4 of the Act. The provisions of the Act dealing with abuse of dominance draw heavily from EU jurisprudence on the topic and specifically from Article 102 of the Treaty on the Functioning of the European Union (“TFEU”).
For the purposes of determining whether the enterprise/ group has engaged in an abuse of dominance, the CCI has to undertake a three stage process:
(a) determination of the relevant market;
(b) determination of “dominance” in such relevant market; and
(c) determination of an “abuse” of such dominant position.
We examine these concepts as under:
Determination of a Relevant Market
Dominance of an enterprise can only be established in a defined relevant market. Therefore, determination of the relevant market is critical in abuse of dominance cases. The relevant market is a function of the relevant product market as well as the relevant geographic market.
The “relevant product market” is defined in the Act as a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use.
The “relevant geographic market” is defined as a market comprising the area in which the conditions of competition for supply of goods or provision of services or demand of goods or services are distinctly homogenous and can be distinguished from the conditions prevailing in the neighbouring areas.
When assessing the relevant market, the SSNIP test or the “hypothetical monopolist” test is commonly used. There are however, some limitations on the application of the SSNIP test in abuse of dominance cases. The recent trend by parties before the CCI has been to rely heavily on economic evidence by submitting an expert report by an economist.
Establishing Dominance in the Relevant Market
Before applying the vigour of Section 4, the CCI will first ascertain whether an enterprise or group is dominant in the relevant market. While determining dominance, the CCI is required to consider all or any of the factors listed in Section 19(4) of the Act which includes a catch-all factor i.e. “any other” factor which the CCI may consider relevant for the inquiry.
Although market share is generally considered to be an important factor in determining dominance, there are no bright line tests prescribed in the Act or by the CCI in this regard. However, it is not the only factor to be considered. This is evident from two seminal orders passed by the CCI relating to abuse of dominance, referred to below.
(a) The CCI in the NSE Order held the National Stock Exchange of India Limited (“NSE”) to be dominant based on its overall financial strength and vertical integration in the stock market, despite it having a lesser market share than the informant, MCX-SX. The CCI observed that “due consideration to some important cases from international jurisdictions … as also guidance papers of some other jurisdictions…indicates that authorities have taken a very wide and varied range of market shares as indicators of dominance, going down to 40% in some jurisdictions. In context of the Indian law, this indicator does not have to be pegged at any point but has to be considered in conjunction with numerous factors given in Section 19(4) of the Act.” The CCI noted that in terms of the prevalent market structure, MCX SX had a market share of 34%, NSE had a market share of 30% and the only other competitor in the market had a share of 36%. As such, the number three player in the market was held to be abusing its dominance based on a complaint filed with the CCI by the number two player in the market.
(b) Further, in its assessment of dominance in the DLF Order, where the CCI imposed a penalty of Rs. 6300 million on DLF Limited for having violated Section 4 of the Act, the CCI and the Director General (“DG”) took into account various factors other than market share, such as statements issued by DLF Limited in the public domain, vast amounts of fixed assets and capital, turnover, brand value, strategic relationships, wide sales network, etc. The relevant market in this case was narrowly defined to comprise the market for high-end residential apartments in Gurgaon, Haryana, in which DLF had a market share exceeding 55%.
It is important to note that dominance itself or the presence of rightfully earned market power is not frowned upon, but it is the misuse or ‘abuse’ of this dominance that creates a competition law concern which is sought to be addressed by way of specialized legislation which will ensure the existence of a competitive market structure.
The Act does not define “abuse”. However, Section 4(2) of the Act provides a list of conduct which is presumed to be abusive and is therefore prohibited. Some of the conditions generally imposed by enterprises, which may fall squarely within the purview of the Act are excessive pricing, predatory pricing, price discrimination between entities in the same circumstances, granting of rebates under certain circumstances, exclusivity agreements, tying and bundling, refusals to supply, leveraging and unfair price or terms and conditions.
However, unfair and discriminatory conditions imposed in the purchase or sale of goods or services and unfair, discriminatory and predatory pricing may be justified if such conduct is adopted to meet the competition.
However, the category of specific arrangements or agreements which could amount to abuse, as provided in the Act, are not exhaustive and there may be other scenarios where a party may be found guilty of abusing its dominant position, for instance by indulging in resale price maintenance or imposing non-negotiable vertical restraints.
Burden of Proof
The burden of proof to prima facie establish the abuse of a dominant position rests on the informant. In case the CCI is satisfied that there is a prima facie case, it will pass an order under Section 26 of the Act directing the DG office to conduct an investigation into the alleged abuse of dominance. The DG is then required to submit an investigation report to the CCI as regards its findings on the allegation of abuse of dominance. As stated earlier, given that an abuse of dominance is a per se violation, the burden of proof to prove that there has been no abuse of dominance shifts to the enterprise under investigation.
Once ‘abuse’ by a dominant enterprise is established, the Act imposes strict liability on an enterprise abusing its dominant position and does not make any reference to an effects based analysis except a limited defence of actions undertaken to meet competition. However, this limited defence is only available in respect of imposition of unfair or discriminatory prices or conditions and not in relation to any other types of abuses. This approach is contrary to the provisions of EU competition law, where the “objective justification” or the “efficiencies” defence can be submitted as a valid defence for a dominant enterprise to engage in abusive conduct.
Determination of Penalty
If the CCI comes to the conclusion that there has been an abuse of dominance by an enterprise or group, it can pass all or any of the following orders, in terms of Section 27 and Section 28 of the Act:
(a) direct discontinuance of such abuse of dominance;
(b) impose penalty to the extent of 10 per cent. of the average of the enterprise’s turnover for the last three preceding financial years;
(c) order division of the enterprise enjoying dominant position; and
(d) pass any other order/direction which it deems fit.
There is presently very little guidance on the mitigating and aggravating factors which weigh with the CCI, if at all, at the time of determining the penalty to be levied in a particular case. Apart from the ceiling fine prescribed by the Act in Section 27, there is no guidance on the quantum of fine to be actually levied in different cases.
Thus far, the absolute level of fines imposed in the abuse cases investigated and adjudicated upon by the CCI is hefty and suggests that the CCI is adopting a deterrent approach. Further, given the uncertainty of concepts dealt with by this new law and a general lack of awareness regarding the scope of activities that may attract penalization under this law, the CCI has taken a rather aggressive stand not only in respect of adopting narrow relevant market definitions but also in terms of the headline penalties imposed by it on individual entities.
Recent Trends in Abuse of Dominance cases in India
In the first case decided by the CCI on abuse of dominance i.e. the NSE Order case, the CCI concluded that NSE held a dominant position in the relevant market although at the time of passing of the order, NSE’s market share in the relevant market (i.e. the CD Segment of the securities market) was 30% while the complainant’s market share was 34%. For the purpose of abuse analysis, the CCI developed a concept of ‘unfair pricing’ distinct from ‘predatory pricing’ and termed it as a clear method of leveraging done by NSE of its profits made in other segments to set-off losses in the CD segment. The CCI arrived at the conclusion that NSE was drawing on its economies of scale with the intention to impede future market access to potential competitors and foreclose existing competition, which it deemed completely unfair from a competition law perspective.
In the second case decided by the CCI on abuse of dominance i.e. the DLF Order case, the CCI analyzed the unfair terms imposed in the Apartment Buyers’ Agreements (“Agreement”) entered into between the real estate developer DLF Limited (“DLF”) and a society comprising allottees of apartments in a housing complex that was proposed to be constructed in Gurgaon, Haryana, by DLF and based on an extremely refined and niche definition of the relevant market, determined DLF to be in a position of dominance in the relevant market comprising high-end residences in Gurgoan. The CCI rejected DLF’s arguments to the effect that the impugned terms of the Agreement were “industry practice” and concluded that as a dominant enterprise in the relevant market, a greater responsibility was imposed on DLF to ensure the terms offered by them were fair and equitable. The CCI noted that the allottees in this case were clearly ‘captured customers’ who were victims of DLF’s abusive conduct. Accordingly, the CCI imposed a hefty penalty of Rs. 6300 million (i.e. 7% of the average of the annual turnover of DLF for the previous three years ). Thus far, the Indian industry’s understanding of ‘abuse of dominance’ has been restricted to instances of exclusionary conduct like predatory pricing or refusal to deal etc; the DLF Order however explored the exploitative angle in abuse of dominance cases.
The most recent CCI case dealing with abuse of dominance is the case of Surinder Singh Barmi v. Board of Control for Cricket in India (“BCCI case”) in which, on a complaint made by a cricket fan in relation to grant of various rights in the Indian Premier League (“IPL”) , the CCI has found the Board of Control for Cricket in India (“BCCI”) to be guilty of abusing its dominance in the market for organization of private professional cricket leagues/events in India. Interestingly, the relevant market definition considered by the CCI in the present case does not take into account the various individual constituent markets which together create the IPL. For instance, the market for call of media rights, franchise rights, sponsorship rights etc arguably constitute a separate relevant market with respect to the bidders for each such right. This is on account of the fact that the demand side substitution and supply side substitution should be observed from the view point of the customer at each level of the value chain.
However, the CCI held that Clause 9.1(c)(i) of a media rights agreement which provided that BCCI shall not organize, sanction, recognize, or support during the existing Rights period (as defined in the agreement) another professional domestic Indian T20 competition that is competitive to the league, resulted in denial of market access in violation of Section 4(2)(c) of the Act. The CCI has directed the BCCI to delete the said clause from the media rights agreement and has imposed a penalty of Rs. 522 million on BCCI, at the rate of 6% of the average annual revenue of BCCI for past three years. The matter is presently pending before the Competition Appellate Tribunal (“COMPAT”) which has stayed the CCI’s order on grounds of a prima facie case existing in favour of BCCI.
The CCI while aggressively enforcing AOD cases and awarding headline penalties does not seem to discriminate between exploitative and exclusionary conduct. Given the way the Act is drafted, the CCI is even considering effective consumer disputes like DLF within the garb of competition law. It remains to be seen whether the CCI continues to stick to its ‘fairness’ mandate or moves beyond it to focus on pure competition concerns.
 An enterprise, as defined under the Act, includes all its divisions, units and subsidiaries.
 A group, for the purposes of abuse of dominance cases, means two or more enterprises, which directly or indirectly, are in a position to:
exercise 50% or more of the voting rights in the other enterprise; or
appoint more than 50% of the members of the board of directors in the other enterprise; or
control the management or affairs of the other enterprise.
The CCI considered unfair and discriminatory conduct in the Belaire Owner’s Association v. DLF Limited and HUDA case (“DLF Order”), where the CCI imposed a penalty of Rs. 6300 million on the dominant enterprise.
 Section 2(r), read with Sections 2(s) and (t) of the Act.
The Small but Significant Non-transitory Increase in Prices (“SSNIP”) test is widely used by the competition authorities around the world to define the relevant market. Starting with the narrowest possible market definition, if it is profitable for a hypothetical monopolist to increase the price(s) of the product(s) in this narrowly defined relevant market by 5%, substitution away from this class of products is small, so the products in the relevant market do not face significant competitive constraints from products outside it, and the candidate market is therefore the relevant market. If, on the other hand, the increase in price(s) is not profitable because consumers would substitute/switch to products outside the candidate market, the market definition would be extended to include the closest of these substitutes, in order to ensure that any product exercising a competitive constraint on the product(s) in question is included in the market definition.
 These factors are:
(a) market share of the enterprise;
(b) size and resources of the enterprise;
(c) size and importance of the competitors;
(d) economic power of the enterprise, including commercial advantages over competitors;
(e) vertical integration of the enterprises or sale or service network of such enterprises;
(f) dependence of consumers on the enterprise;
(g) monopoly or dominant position whether acquired as a result of any statute or by virtue of being a government company or a public sector undertaking or otherwise;
(h) entry barriers, including barriers such as regulatory barriers, financial risk, high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of substitutable goods or service for consumers;
(i) countervailing buying power;
(j) market structure and size of market;
(k) social obligations and social costs;
(l) relative advantage, by way of the contribution to the economic development, by the enterprise enjoying a dominant position having or likely to have an AAEC; and
(m) any other factor which the CCI may consider relevant for the inquiry.
 Paragraph 10.48 of the NSE order.
 Using dominant position in one market to enter into or protect the other relevant market is an abuse (for instance, the NSE Order case). Therefore, the existence of dominance and the abusive conduct are not required to be in the same market.
 The CCI has elaborated on the concept of “unfair pricing” in the NSE Order, which is distinct from predatory pricing. In the NSE Order, the CCI held that the zero price policy of NSE in the currency derivatives segment of the financial services market is “unfair”. Unfairness, it was held, was required to be determined, not on the basis of cost estimates such as average variable cost, average avoidable cost, long run average incremental cost, etc., but on the basis of the facts of the case, and “in the context of unfairness to the customer, or in relation to a competitor.” The NSE Order specifically notes that the two competitors, i.e., NSE and the MCX Stock Exchange Limited were not “on equal footing” in relation to financial resources.
 Explanation to Section 4(2)(a) of the Act.
 PDA Trade Fairs v. India Trade Promotion Organisation, Case No. 48 of 2012.
 Case No. 13/2009, available at: http://www.Commission.gov.in/May2011/OrderOfCommission/MCXMainOrder240611.pdf
 Case No. 19/2010, available at:http://www.Commission.gov.in/May2011/OrderOfCommission/DLFMainOrder110811.pdf
 Case No, 61 of 2010, available at: http://www.cci.gov.in/May2011/OrderOfCommission/612010.pdf
 The authors are advising the BCCI in this matter.