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Abuse of dominance under Competition Act

Abuse of a dominant position occurs when a dominant firm in a market, or a dominant group of firms, engages in conduct that is intended to eliminate or discipline a competitor or to deter future entry by new competitors, with the result that competition is prevented or lessened substantially.

An enterprise in dominant position performs any of the following acts: directly or indirectly, imposes unfair or discriminatory practices, limits or restricts production of goods or provision of any services in any form.

Definition
The Indian position regarding dominance is currently governed by the Competition Act, 2002, which deal with the matter in detail. But before going into that it will be worthwhile to take a look at the position under the old law, which is The Monopolies and Restrictive Trade Practices (MRTP) Act, 1969.

The provisions of this Act were targeted at “dominant undertakings” and as a result firms were being hit merely due to their size. The term “dominant undertaking” was defined under Section 2(d).

The Act defines dominant position (dominance) in terms of a position of strength enjoyed by an enterprise, in the relevant market in India, which enables it to:
  • a operate independently of the competitive forces prevailing in the relevant market; or
  • affect its competitors or consumers or the relevant market in its favour.
It means that the fact or state of being dominant: such as. a sociology : controlling, prevailing, or powerful position especially in a social hierarchy male dominance political dominance companies competing for dominance in the market dominance over their rivals. The term abuse of dominant position refers to anticompetitive business practices in which a dominant firm may engage in order to maintain or increase its position in the market.

Section 4(2) of the Act provides that there shall be an abuse of a dominant position if an enterprise or a group:

  • directly or indirectly imposes unfair or discriminatory conditions or prices in the purchase or sale of goods or services;
  • restricts or limits production of goods or services in the market; etc.
  • As per Section 4(2)(c) of Act of the Act, there shall be an abuse of dominant position if any enterprise indulges in a practice resulting in denial of market access in any manner.
It states that it means the market which may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both markets.

Factors To Determine Dominant Position[1]

Dominance has been traditionally defined in terms of market share of the enterprise or group of enterprises concerned. However, a number of other factors play a role in determining the influence of an enterprise or a group of enterprises in the market. These include:
  • market share,
  • the size and resources of the enterprise;
  • size and importance of competitors;
  • economic power of the enterprise;
  • vertical integration;
  • dependence of consumers on the enterprise;
  • extent of entry and exit barriers in the market; countervailing buying power;
  • market structure and size of the market;
  • source of dominant position viz. whether obtained due to statute etc.;
  • social costs and obligations and contribution of enterprise enjoying dominant position to economic development.
The Commission is also authorized to take into account any other factor which it may consider relevant for the determination of dominance.

Examples
As to the requirement to show anticompetitive effects, in some older cases, the CCI has considered and applied an object-based approach while finding abuse (for example, National Stock Exchange case).

In more recent cases, however, the CCI and COMPAT have deployed an effects-based approach while evaluating abusive conduct. The following cases are illustrative.
  1. In the Schott Glass case the COMPAT found that unlawful price discrimination required a showing of both(i) dissimilar treatment to equivalent transactions; and (ii) harm to competition or likely harm to competition in the sense that the buyers suffer a competitive disadvantage against each other leading to competitive injury in the downstream market’. The matter is under appeal before the Supreme Court.
     
  2. In XYZ v REC Power Distribution Company Ltd, the CCI noted that establishing a denial of access meant proving ‘anticompetitive effect/distortion in the market in which denial has taken place

Legislation

Every car owner would give a knowing nod when spoken to about the struggle of finding reasonably priced spare parts for their cars. While original parts can only be found at limited dealerships (which would invariably be miles away from home), once found, a small block of plastic would be worth a proverbial fortune.

In this post, the issue of ‘abuse of dominant’ position as per S.4 of the Competition Act (‘the Act’) shall be analyzed. The three steps to determine a contravention of S.4 shall be discussed in terms of factors considered by the Commission to assess each, and lastly, penalising powers of the Commission will be looked into.
  1. Relevant Market:
    1. Product Market;
    2. Geographical Market
  2. Determination of dominant position
According to the Act, dominant position means a position of strength, enjoyed by an enterprise in the relevant market in India which enables it to:
  1. Operate independently of competitive forces in relevant market
  2. Affect competitors, consumers or relevant market in its favour

Section 19(4) of the Act sets out various factors that the Competition Commission of India (the CCI) must consider in assessing whether an enterprise enjoys a dominant position, such as market share, size of the enterprise, resources available to it, importance of competitors, economic power, commercial advantages, vertical integration, consumer dependence, entry barriers, market structure and size.

Section 4 of the (Indian) Competition Act 2002 (the Act) prohibits enterprises holding a dominant position in a relevant market from abusing such a position. It prevents any enterprise or group from abusing its dominant position. The Act also provides circumstances under which there is abuse of dominant position. Section 4(2) of Act prevents following acts resulting in abuse of dominant position:
  1. Impose unfair or discriminatory condition or price in sale and purchase of goods or services;
  2. Limit or restrict;
  3. Production of goods or services
  4. Technical or scientific development relating to goods or services to the prejudice of consumers;

Landmark judgment
In Dhanraj Pillay & Ors v Hockey India[2],the CCI held that the Act was not violated where allegedly abusive contractual restrictions were not disproportionate to a sporting organisation’s legitimate regulatory goals.

Faridabad Industries Association (FIA) v M/s Adani Gas Limited (AGL) [4] (2014) (Adani Gas case), the CCI held by the court that a restriction was imposed by a dominant enterprise which may not be abusive if it is subject to the same restriction by a third party.

In summary, the more recent CCI and COMPAT jurisprudence reflects a move away from rigid form-based analysis. Instead, the CCI is increasingly requiring proof of anticompetitive effects in its enforcement action.

Conclusion
The Competition Act, 2003 is the successor of the Monopolistic and Restrictive Trade Practices Act, 1969. It went to great changes in 2007. Thus, In India has ages barely seven years on the prevalent competition law jurisprudence. In spite of that, it is a progressive bit of legislation which, unlike the MRTP Act which had little tolerance for any dominance, recognizes the changing market conditions and does not have problems with dominance per se, but it does not veer away from its objective of keeping the market competitive.

The preamble to and section 18 of the Act suggests that the purpose of the Act includes ensuring fair competition in India. The standard is largely economic, with a view to preventing practices that have an appreciable adverse effect on competition, promoting and sustaining competition in markets, and protecting the interests of consumers.

The Act does not provide for sector-specific regulation of dominance. Under the Act, the CCI has powers under which it can investigate unilateral conduct by dominant enterprises across all sectors.

References:
  1. sub section (4) of Section 19
  2. Case no. 73 of 2011, in 2015
  3. Case no.71 of 2012 In re 2014
  4. Case no.71 of 2012 In re 2014

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