Competition (Amendment) Bill 2020: A Failure to Address Effects-Based Approach to Abuse of Dominance
[Prerna Raturi is a student at Symbiosis Law School, Pune.]
On 12 February 2020, the Union Ministry of Corporate Affairs (MCA) introduced the Competition (Amendment) Bill 2020 (Bill). The Bill is a result of the recommendations made by Mr. Injeti Srinivas-headed Competition Law Review Committee (CLRC) in its report. The Bill indeed encompasses various debated issues pertinent to the Indian competition regime and has accordingly proposed changes in the Competition Act 2002 (Act). Despite this attempt, there are certain issues that require reform but remain unaddressed in the Bill. Thus, in view of these unresolved concerns, the Bill seems to have left a scope for improvement. One of such concerns is the failure to address the effects-based approach in respect of abuse of dominance.
Abuse of dominance under the Act
Section 4 of the Act provides that an entity enjoys a dominant position (a) if it is able to operate independently of the competitive forces engendered by its rivals or (b) if it is able to affect the competition or consumers or the relevant market in its favour. By establishing either of these two points, the dominant position of an entity can be ascertained in the relevant market. On proving that the dominant entity has undertaken any act that satisfies the conditions stipulated in Section 4(2), the abuse of dominance is established. Therefore, abuse of dominance under Section 4 is founded in three steps: (1) identification of the relevant market, (2) ascertaining if the entity enjoys dominance in the relevant market and (3) assuring whether the conduct of the entity entails conditions of Section 4(2).
Further, any 'discriminatory condition or price' imposed by an entity in order to meet the competition is not anti-competitive under the Act. However, the Bill proposes to bring a slight variation in this provision by extending “to meet the competition” defence to any condition or price imposed by the entity, irrespective of its discriminatory nature. The Bill does not include any provision to introduce the criteria of an effects-based test to reach a finding of abusive conduct by a dominant entity.
Inadequacy of form-based approach
The above-mentioned criterion suggests that a form-based approach is used under Indian competition law to assess abuse of dominance. Mere commission of certain acts, falling squarely under Section 4(2), can lead to abuse by a dominant entity without analyzing its actual effects on the competition in the relevant market. There can be instances where the commission of an act by a dominant entity might have pro-competitive benefits, but it would not be even extended an opportunity to objectively justify its actions. For example: If a superstore is established in a city, it is capable of driving out other small-scale merchants (competitors) out of the market [denial of market access is an abusive practice under Section 4(2)]. However, at the same time, it is also optimizing the allocative and productive efficiencies in the market by offering enhanced goods and provision of services to the consumers.
This traditional approach is indeed a shallow one and does not align with the present need of the Indian economy. With the introduction of the Act in 2009, the competition law in India was revolutionized as the already enforced Monopolies and Restrictive Trade Practices Act 1969 merely dealt with the restriction of monopolies. It could not provide solutions to the modern problems of the market and was inadequate for its needs and thus, had to be repealed. Similarly, the dynamic nature of the Indian economy requires a major shift from the form-based approach to an effects-based approach.
Why is a shift to an effects-based approach required?
When dealing with the anti-competitive agreements, under Section 3 of the Act, the Competition Commission of India (CCI) delves into the question of the appreciable adverse effect on competition caused or likely to be caused by the concerned agreement. In fact, CCI not only gives due recognition to the pro-competitive effects of an agreement but also to the factors that stimulate the formation and maintenance of cartels in a particular market. This shows that a conscious effort was made by the legislature to depart from the archaic form-based approach when evaluating anti-competitive agreements. A similar approach is required to be adopted to assess the abusive conduct of dominant entities.
Another imperative point for consideration is that the preamble of the Act itself exhibits the intention of the legislature to advocate an approach that weighs the effect of a measure effected by an entity in the market before reaching to a conclusion. The preamble of the Act states that the fundamental aim of the Act is “to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect the interests of consumers and to ensure freedom of trade carried on by other participants in markets, in India.” Therefore, mere promotion of the competition in the market cannot serve the entire purpose of the Act.
Should the CCI prevent anti-competitive practices, it still remains obliged to ensure freedom of trade and consumers’ welfare by letting entities pursue the strategies they believe best for their business and consumers. This must not be achieved by eclipsing competition in the market. The preamble mandates the prevention of only those practices that have an adverse effect on the competition. Therefore, unless the same cannot be ascertained, the actions of an entity must not be characterized as abusive. But a narrow form-based approach puts this objective on the back burner and does not even allow the CCI to conduct a holistic assessment of a dominant entity’s actions to establish actual or probable abusive conduct. This is possible only by adopting an effects-based approach that will authorize the CCI to determine whether the actions of the firms are actually detrimental to the competition, irrespective of satisfying the conditions stipulated under Section 4(2).
Approach of CCI
The statutory framework clearly does not provide for an effects-based approach in matters of abuse of dominance. That is why even CCI has followed a form/object-based approach while dealing with the same. Having said that, CCI has also deployed an effects-based approach in certain cases of abusive conduct. In the Schott Glass case, Section 4 was invoked on the grounds that Schott Glass was involved in the discriminatory pricing of its glass tubes. CCI adjudged this to be an abusive conduct as engaging in discriminatory or predatory pricing is explicitly prohibited under Section 4(2). Conversely, on appeal, the Competition Appellate Tribunal observed that the mere existence of discriminatory pricing is not sufficient to prove abuse of dominance but the effect of such conduct on the market must also be considered. It was found that the alleged conduct neither caused a visible harm to the competition nor did it cause any competitive disadvantage to the consumers. Similarly, there are certain other case as well, such as Intel Corporation case or The Board of Control for Cricket in India case where the CCI has opined a conduct to be abusive only after appreciating the proof of anti-competitive effects of such conduct on the market.
However, in the absence of an explicit provision requiring analysis of the effect of a practice on the market, there have been times when CCI has erred in its findings, thwarting the pro-competitive effects of a business strategy adopted by the entities. One such example is of Rico Industries case and Adani Gas Limited case. Both the cases dealt with similar 'take-or-pay' and 'minimum guarantee off-take' clauses. In the Rico Industries case, CCI found the take-or-pay clause to be imperative in gas supply agreements as the risk involved is shared by both the buyers and suppliers. In the absence of the clause, buyers can under-draw the gas supply based on their usage and requirement, leaving the supplier at the whims and fancies of the buyer. To have a stable revenue stream, the buyer must bear the volume risks irrespective of its demand on account of the huge financial commitment made by the supplier in the form of its investment in the project. Therefore, mere inclusion of a take-or-pay clause in a gas supply agreement cannot render it to be an abusive conduct. However, in the Adani Gas Limited case, a similar minimum guaranteed off-take clause was found to be anti-competitive and the conduct of the supplier abusive. This was decided only after analyzing the effect of the alleged clause on the buyers’ business.
A comparative analysis of both these cases is a classic example of how employing different approaches in similar cases can lead to different findings. CCI on applying a form-based approach did not find the conduct of the supplier to be abusive in the Rico Industries despite the fact that no take-or-pay liability was imposed on the supplier by its upstream supplier. Thus, the supplier was recovering those losses from the buyers which it never actually suffered. The mere fact that, in a general context, a take-or-pay clause is not per se anti-competitive, cannot relive the supplier of its abusive conduct. On the other hand, CCI deployed an effects-based approach in the Adani Gas Limited case and evaluated how the lesser time for compliance given to its buyers was an abusive conduct on the part of the seller. It was founded despite seller having a similar liability to take-off at least 50% of the cumulative daily cumulative quantity of natural gas. The only reason for the seller’s conduct to be abusive was the longer period for compliance enjoyed by it from its upstream supplier. Thus, even though such clauses are not per se detrimental to the competition in the market, their impact must be appreciated on an individual basis, in order to determine whether they restrict competition.
The recommendations made by the CLRC report aimed at equipping the CCI to deal efficiently with new age markets. To a great extent, the same has also been achieved by the introduction of the Bill. However, the requirement of applying an effects-based approach while assessing abuse of dominance still needs to see the light of the day. A particular business strategy has different outcomes in different situations. It may either promote competition or impair it. Thus, a straitjacketed implementation of Section 4 is nothing short of curtailing the liberty of firms to come up with practices that might benefit the consumers as well as increment the efficiencies of the business. Thus, the competition watchdogs need to weigh out the most probable outcome and make sure that pro-competitive business strategies are not impeded in the name of preventing competition. It is the responsibility of CCI to deter abusive conduct but at the same time to provide an opportunity to firms to enhance the provision of services, productivity and growth. This cannot be attained unless the adverse effect of a practice is appreciated before finding it to be abusive.