ABSTRACT-
E-commerce industry popularly described as a trending industry of India is set to cross business in the world. Both demand and supply side factors cumulate for the growth of e-commerce in the future. Such factors include- the rise of smartphones & mobile apps, growing young population of India, emergence of smart cities & wifi zones etc. E-commerce is further characterized by its expansion in products and outreach in geographical space.The same is facilitated as e-commerce displays an era where partnership between online platforms and good/service providers, i.e brands.
It is here that the interface between competition law and e-commerce. Increasingly, companies i.e. those operating in the e-commerce space exclusively (e.g. flipkart) and those featuring dual presence (e.g. Shopper‘s Stop which has a presence in both ie as well as online segment) are taking note of e-commerce compliance and enforcement. Competition law has proven to be more directly applicable to e-commerce companies rather than traditional laws such as those pertaining to foreign investment, taxation etc laws.The presence of intermediaries in the e-commerce industry in the form of retail platforms e.g. Flipkart,etc or aggregators e.g. Olacabs,etc create for more complex problems of competition law.
INTERFACE BETWEEN COMPETITION LAW & E-COMMERCE:
ANALYSIS OF ISSUES Competition law issues arise in the e-commerce industry in several ways. The Indian ecommerce industry houses both domestic and international players. Therefore, any merger or amalgamation of e-commerce firms whether in India or off-shore which may have an impact in India, remains liable for notification under Section 6 of the Competition Act, 2002 (Act). Similarly, every agreement pertaining to transactions in the e-commerce space across producers, between producer and distributor, between producer/distributor and consumer remains subject to competition compliance as such terms may take an anti-competitive law under Section 3 of the Act[1] causing an appreciable adverse effect on competition. The conduct of certain e-commerce players who enjoy dominance by virtue of their market share or other factors such as commercial advantage, service network etc. may also be brought under the ambit of competition law. Such conduct under Section 4 of the Act may involve imposition of unfair terms or discriminatory conditions on commercial transactions such as sale or distribution in e-commerce space, setting of final price of the commodity/service for the consumer, denying market space to new entrants or using one‘s power in one market to gain entry in another market.
BACKGROUND-
History of e-commerce starts from the concept of “sell and buy”, electricity, cables, computers, modems, and the Internet. E-Commerce started in the 1960s, when technological developments meant that data could be exchanged electronically for the first time, but E-commerce became possible in 1991 when the Internet was opened to commercial use. Since then thousands of businesses have taken up residence at web sites.
E-commerce meant the process of execution of commercial transactions electronically with the help of the leading technologies such as Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT) which gave an opportunity for users to exchange business information and do electronic transactions. The ability to use these technologies appeared in the late 1970s and allowed business companies and organizations to send commercial documentation electronically.
These services provided online over the internet network. Transaction of money, funds, and data are also considered as E-commerce. These business transactions can be done in four ways: Business to Business (B2B), Business to Customer (B2C), Customer to Customer (C2C), Customer to Business (C2B). The standard definition of E-commerce is a commercial transaction which is happened over the internet. Online stores like Amazon, Flipkart, Shopify, Myntra, Ebay, Quikr, Olx are examples of E-commerce websites.
E-Commerce giants, Amazon and eBay have been leaders in the industry since its infancy, and were amongst the first well known eCommerce brands.
Social media[2] has also changed how consumers shop with their chosen eCommerce retailers. Social platforms have made brands much more accessible for their customers (consumers feel equal to brands on social, not below them), and has changed the way they communicate with businesses. Also the rise of mobile e commerce as by this people doing it in their hand and also google in their hand. These two developments in 2010.
INTRODUCTION-
COMPETITION LAW IN INDIA-
The Competition Act,[3] 2002 was enacted by the Parliament of India and governs Indian competition law. It replaced The Monopolies and Restrictive Trade Practices Act, 1969. Under this legislation, the Competition Commission of India was established to prevent the activities that have an adverse effect on competition in India.[1][2] This act extends to whole of India.
It is a tool to implement and enforce competition policy and to prevent and punish anti-competitive business practices by firms and unnecessary Government interference in the market. Competition laws is equally applicable on written as well as oral agreement, arrangements between the enterprises or persons.
The Competition Act, 2002 was amended by the Competition (Amendment) Act, 2007 and again by the Competition (Amendment) Act, 2009.
The Act establishes a Commission which is a duty to protect the interests of free and fair competition (including the process of competition), and as a consequence, protect the interests of consumers. Broadly, the Commission’s duty is:-
To prohibit the agreements or practices that have or are likely to have an appreciable adverse effect on competition in a market in India, (horizontal and vertical agreements / conduct);
To prohibit the abuse of dominance in a market;
To prohibit acquisitions, mergers, amalgamations etc. between enterprises which have or are likely to have an appreciable adverse effect on competition in market(s) in India.
In addition to this, the Competition Act envisages its enforcement with the aid of mutual international support and enforcement network across the world.
Competition Commission of India is a statutory body of the Government of India responsible for enforcing The Competition Act, 2002 throughout India and to prevent activities that have an appreciable adverse effect on competition in India. It was established on 14 October 2003. It became fully functional in May 2009 with Dhanendra Kumar as its first Chairman.
INTERFACE BETWEEN COMPETITION LAW & E-COMMERCE: ANALYSIS OF ISSUES-
Competition law issues arise in the e-commerce industry in several ways. The Indian ecommerce industry houses both domestic and international players. Therefore, any merger or amalgamation of e-commerce firms whether in India or off-shore which may have an impact in India, is there for notification under Section 6 of the Competition Act, 2002 (Act). Similarly, every agreement pertaining to transactions in the e-commerce across producers, between producer and distributor, between producer/distributor and consumer remains subject to competition followed as such terms may take an anti-competitive nature under Section 3 of the Act causing an appreciable adverse effect on competition.
The conduct of certain e-commerce players who enjoy dominance by virtue of their market share or other factors such as commercial advantage, service network etc. may also be brought under the ambit of competition law. Such conduct under Section 4 of the Act may involve imposition of unfair terms or discriminatory conditions on commercial transactions such as sale or distribution in e-commerce space, setting of final price of the commodity/service for the consumer, denying market space to new entrants or using one‘s power in one market to gain entry in another market.
Anti competitive agreements are those which lessen, reduce or prevent competition-Sec 3
DOMINANT POSITION (under Section 4 Competition Act, 2002)
Dominant Position has been defined as a position enjoyed by an enterprise whereby enables it to
i) operate independently of competitive forces prevailing in the relevant market; or
ii)affect its competitors or consumers or the relevant market in its favour
ABUSE OF DOMINANT POSITION (under Section 4 Competition Act, 2002)[4]
An enterprise in dominant position performs any of the following acts:
a.directly or indirectly, imposes unfair or discriminatory practices
b.limits or restricts production of goods or provision of any services in any form
c.indulges in practice or practices resulting in denial of market access
d.makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which have no connection with the subject of such contracts; or
e.uses its dominant position in one relevant market to enter into, or protect, other relevant market.
Combination[5] within the Competition Law is the merger between two or more enterprises or firms or the business sector acquisitions (such as companies or firms) by other business enterprises. The Government controls combinations or mergers and acquisitions within the country to promote competition and thereby seeing to that small scale establishments are not dominated and taken over by more reputed industries. This is because the merger of big companies not only reduce competition but also make it difficult and almost impossible for smaller firms to grow or profit from their business. The collection of wealth in certain sectors of business and the consumer concerns can lead to major economic and social issues within the nation- Sec 6 – Regulation of Combinations.
CHALLENGES-
ASCERTAINING THE RELEVANT MARKET– is the first step in assessing an abuse of dominance claim. In the context of e-commerce, one may argue that online and off- line markets could be considered as distinct markets and therefore online market alone may be characterized as a relevant market. In this regard, the approach of CCI in determining this question remains vital. First, in the Flipkart case, CCI left the question of whether e-portal markets may be treated as a separate relevant product market or as a mere sub-segment of the market for distribution.However, in the Snapdeal case,CCI clarified that both offline and online markets differ in terms of discounts and shopping experience. Similarly, buyers weight the options available in both the markets and decide accordingly. Therefore, if the price in online market increases significantly, then the consumer is likely to shift towards the offline market and vice versa. Following this reasoning, the Commission opined that the two markets-online and offline, are only different channels of distribution of the same product and are do not constitute as different relevant markets.
TREATMENT OF EXCLUSIVE ARRANGEMENTS AND MINIMUM RETAIL PRICE-[6]
Choosing exclusive dealers/distributors thereby refusing to deal with other players in the market has remained a prevalent conflict under competition laws. This issue is coming in the context of e-commerce and taking itself in various ways. In modern day, it is most often seen that several products, e.g. specific brands of mobile phones are only available for purchase through e-retailers.While it may be manufacturer‘s choice to adopt such policies to reach to a wider audience in a cost effective manner, the anti-competitive effects of such arrangements and concerns regarding foreclosure of market for other players continue to prevail. This issue has reached the CCI in the context of the sale of Chetan Bhagat‘s book, ―Half Girlfriend‖ which was exclusively available on Flipkart‘s website. Also Some mobile phones belonging to Motorola brand are available for purchase only on Flipkart. So, physical market and tend to create product specific monopoly leading to manipulation of price, control of production and supply, imposition of terms and conditions detrimental to interests of consumers and distortion of fair competition in the marketplace.
However, CCI did not agree with these allegations and opined that an exclusive arrangement between a manufacturer and an e-portal would not create any entry barriers as most of the products as illustrated in the information to be sold through exclusive e-partners (i.e. online platforms) face competitive constraints. In CCI‘s views, mobile phones, tablets, books, camera etc., are neither alleged nor seem to be trodden by monopoly or dominance. Furthermore, there was no evidence that by virtue of such exclusive agreements any of the existing players in the retail market were getting adversely affected. CCI was of the opinion that in the new e-commerce era, with the entry of new e-portals into the market, competition only seems to be growing, thereby allaying anti-competitive concerns.
DIFFICULT PRICE MECHANISM- Internet has made it easier for the customers to conduct a research on the product they intend to buy and has also lowered the search costs but not to zero as customers also have related costs. Firms adopt means to make the comparison of prices difficult for the customers to prevent them from shifting to other competitiors.
RESALE PRICE MAINTAINENCE- (RPM) – One of the issues which are being faced globally is that of RPM which is, in fact, common to both physical and online stores. This is taken seriously all across the world as this amount to an infringement by ‘object’. By its very nature, it has a high potential for restricting competition and the consumer may end up paying more than what was required.
INFORMATION ASYMMETRY[7] – Although, internet being a medium without boundaries, geographic markets tend to have been expanded but customers still prefer to transact within limited distances owing to cultural and security reasons. E-commerce has lowered the distribution costs as manufactures can directly transact with the customers, thereby, elimination the need of the players in the middlemen and also because online retailers can provide for a wider variety of products online. However, this leads to an information asymmetry as the consumers are not able to test the product before buying the same and, hence, it is all the more difficult for the retailer to build a reputation. Hence, price competition is getting faster, geographic markets widening and consumers are able to buy the products which were hitherto not available in physical markets.
Google is being investigated for its alleged abusive conduct in the market for Android operating systems for mobile devices to foreclose its competitors’ operating systems and apps.
Intel’s conduct for its alleged unfair and discriminatory provisions in its warranty policy for boxed micro-processors is also being scrutinised by the CCI.
The national company law appellate tribunal (NCLAT) affirmed the special responsibility of a dominant entity and held that such an entity cannot protect its commercial interests, at the cost of the competition.
The sports sector in India has been subject to anti-trust scrutiny from the CCI, for anti-competitive practices, leading to several course corrections by sporting bodies, consistent with practices followed by mature anti-trust regulators.
PREDATORY PRICING-[8]
Predatory pricing, also known as undercutting, is a pricing strategy in which a product or service is set at a very low price with the intention to achieve new customers or driving competitors out of the market or to create barriers to entry for potential new competitors.
If competitors or potential competitors cannot sustain equal or lower prices without losing money, they go out of business or choose not to enter the business. The so-called predatory merchant then has fewer competitors or even is a de facto monopoly.
Predatory pricing is considered anti-competitive in many jurisdictions and is illegal under some competition laws. However, it can be difficult to prove that prices dropped because of deliberate predatory pricing, rather than legitimate price competition. In any case, competitors may be driven out of the market before the case is ever heard.CCI also in India also says its illegal.
DEEP DISCOUNTS-
This is where the products are given at a throw away price and followed by predatory pricing and at a very low price to drive away competitors and example Flipkart 2014 October the Big Billion Sale where it generated very huge amount of revenue. Thus, abusing the market and competition law dominant position.
CASE LAWS-
NEERAJ MALHOTRA VS NORTH DELHI POWER LTD-[9]
In the case of, Shri Neeraj Malhotra, Advocates v. North Delhi Power Ltd., the CCI observed that Section 4 of the Competition Act does not prohibit an enterprise from holding a dominant position in a market, it does place a special responsibility on such enterprises, in requiring them not to abuse their dominant position. The CCI further held that Section 4 does not contain an exhaustive list of activities that would amount to contravention of its provisions. The actions, practices and conduct of an enterprise in a dominant position have to be examined in view of the facts and circumstances of each case to determine whether or not the same constitutes an abuse of dominance in terms of Section 4 of the Competition Act.
JUPITER GAMING SOLUTIONS VS GOVERNMENT OF GOA-[10]
In the case of Jupiter Gaming Solutions Pvt. Ltd. v. Government of Goa & Ors , the CCI while determining alleged abuse of dominance by Government of Goa stated that dominance is not bad, but its abuse is bad in Competition Law in India. CCI further said that abuse is said to occur when an enterprise uses its dominant position in the relevant market in a wrong or /and an exploitative manner. In the case the Government’s tender bid of lottery contained certain conditions which restricted the size of bidders such as, minimum gross turnover of the participating entity, participating entity should have experience of at least three years. The CCI held that the Government of Goa by imposing such conditions abused its dominant position denial/restriction of market access to the other parties in the relevant market.
M/S FAST TRACK CALL CAB PVT LTD VS ANI TECHNOLOGIES-[11]
M/s Fast Track Call Cab Private Limited v. ANI Technologies it was alleged that Ola was providing incentives, loyalties, rebates, predatory discounts. Here, the Commission noted that the act of Ola of providing heavy discounts to its purchasers and bonus to its employees at the cost of bearing loss seems to be a plan of the enterprise formulated to exclude other market players out of the relevant market. This case shows that CCI has done with regards to the protection of the traditional taxi service providers.
SODHI TRANSPORT CO VS STATE OF UP-[12]
In the case of Sodhi Transport Co. v. the State of U.P., phrase ‘shall be presumed’ as used in Section 3(3) has been interpreted as a presumption and not as evidence in itself which is indicative of the party on whom the burden of proof lies. A popular example of such horizontal agreement is cartels.
M/S SHUBHAM SANITARYWARES VS HINDUSTAN SANITARYWARES-[13]
M/s Shubham Sanitarywares v. Hindustan Sanitarywares & Industries-
CCI has clarified that the practice of offering differential discounts to different consumers i.e. less discount for retail buyers and a higher discount for bulk buyers (such as institutionsbuilders, colonizers and persons of importance) may not be a violation of Section 3(4) of the Act but maintaining the specific rate of discounts to different consumers should be there else if this means its a violation and adverse effect.
ESYS VS INTEL CORPORATION-[14]
ESYS v. Intel Corporation & Ors.,
A case was instituted against Intel which was allegedly dictating the retail price of its products to the distributors. Here, the Commission held that monitoring of the market‘s price by the Manufacturer of its own products (i.e. price at which the dealer is selling them) cannot by itself be said to be anti-competitive. Such monitoring neither creates entry barriers in the market nor leads to any market foreclosure.
SNAPDEAL VS KAFF APPLIANCES-[15]
Snapdeal v. Kaff Appliances- Snapdeal had alleged that Kaff Appliances, a leading brand of kitchen appliances imposed a ban on providing after sales warranties to customers who buy products online channels who may not be considered as authorized sellers. Snapdeal, said such a ban was imposed without any justification for the same and alleged that the seller‘s conduct resulted in a total deprivation of consumer choice in violation of section 3(4) (d) of the Act. Highlighting various factors under section19(3) of the Act, Snapdeal alleged that the agreements entered with Kaff Appliances and dealers/distributors had an appreciable adverse effect on competition.
This time, the Commission instead of permitting such practices as commercially prudent measures to check quality and protect its distribution channel, instead held that the act of Kaff Appliances in the nature of a unilateral policy involved coercion.
MOHIT MANGLANI VS FLIPKART-[16]
In this case,the sale of the book titled “Half Girlfriend” written by Chetan Bhagat, which was available for sale exclusively at flipkart. It was alleged that such as arrangement was destroying the other players in the physical market and leading towards the creation of item particular restraining infrastructure in this way, advancing control of value, control of the creation and supply, burden of terms and conditions which may be inconvenient to the enthusiasm of the shoppers and rivalry in the commercial centre. However, such allegations were rejected by the CCI which opined that a selective plan between a maker and an e-gateway would not make any entry obstructions since products sold via online portals face competitive constraints. Thus, in the opinion of the CCI mobile phones, tablets, books, cameras etc., are not to be imposing business model or predominance. Moreover, there was lack of a evidence to show that it was by reason of the exclusive agreements that any of the existing players were getting adversely affected. The CCI opined that the new era of online business went with the passage of new e-entries into the market and not rivalry.
CONCLUSION-
Competition law intervention in e-commerce sphere serves various purposes. It facilitates the-commerce companies to operate in an equal plane with traditional businesses and companies and their dealers. Competition law provides enough space and innovative companies are able to penetrate into the market and offer more choices to consumers and companies. At the same time, competition law provides enough safeguards for traditional dealers and companies intending to protect the interest of the traditional dealers against the eroding effects caused by e-commerce companies. Similarly, competition law provides checks and balance upon e-commerce companies preventing them to price unfairly,i.e. offer deep discounts which in turn are predatory. Besides, e-commerce also provides a strategic value to e-commerce companies who may proceed against unfairness in the online space perpetuated by giants such as Google. The interface between e commerce and competition law has emerged as one of the seminal issues and in days to come, would crucially shape the jurisprudence both of competition law and e-commerce regulation.
The rise smartphones & mobile apps, growing young population of India, emergence of smart cities & wifi zones on one hand; and growing national and international capital funding in the e-commerce sector on the other. This is one if the reasons. E-commerce is further characterized by its expansion in products and outreach in geographical space. Therefore, a wide variety of product and services become accessible to larger masses across remote districts and towns of India by a single click. The same is facilitated as e-commerce displays an era where partnership between online platforms and good/service providers, i.e. brands, is ubiquitous and involves diverse types of purchase, supply or distribution agreements operating at both horizontal and vertical levels. It is here that the interface between competition law and e-commerce become nuanced.
From the view of Indian law, CCI, the analysis of e-commerce represents a new phase. Clearly traditional principles of consumer preference, product substitutability, and business efficiency cannot be directly applied to the e-commerce space as most transactions involve only a virtual interface with the product/service. Furthermore, the presence of intermediaries in the e-commerce industry, whether in the form of retail platforms e.g. Flipkart, Snapdeal or aggregators e.g. Olacabs, Oyorooms etc. create for more complex problems of competition law. It is therefore a time to study the trends of competition law enforcement and compliance issues in the light of e-commerce industry. The focus of the subsequent parts of the paper would be to analyze the law of abuse of dominance and anti-competitive agreements in the context of e-commerce actors, i.e. service providers, online platforms, aggregators and consumers. All was discussed with this and also challenges, analysis along with aim, focus, abstract, case laws, background, interface and introduction.
REFERENCES:
1. www.indiakanoon.org/CCI
bareact
2. www.lawnn.com
3. http://en.wikipedia.org/wiki/CCI
4. cis-india.org
5. www.legalservicesindia.com
6. www.mondaq.com
7. www.iclr.in
8. one.oecd.org
9. amity.edu
10.Manupatra.com
11.SCC online
12.www.cci.gov.in
13.www.casemine.org
14.www.medianama.com
15.www.advocatekhoj.com
16.competition.cyrilamarchandblogs.com
17.http://en.wikipedia..org.wiki/E-commerce
About author –
This article is authored by Paarth Chopra, Final year BBA LLB(Hons) student at ICFAI Law School, Hyderabad.