Effective Use of Interim Reliefs as an Alternative for an Ex-Ante Regulation
[Srinjoy is a student at National Law School of India University.]
India is currently witnessing rapid digitalization, with reports suggesting that digital payments may take over 50% of the transactions by 2026. The rapid digitalization and expansion of digital markets have brought in newer concerns in the areas of data privacy and competition law. Keeping pace with the evolution of digital markets, the Competition of India (CCI) has also evolved from a position where it viewed online and offline segments as belonging to the same relevant market to a position where the CCI has actively distinguished between online and offline segments and the unique challenges that online markets bring in. While there is a major academic agreement over the analysis that digital markets differ significantly from traditional markets, the question of whether separate legislation is required to tackle the unique challenges that come with digital markets has been the subject of debate.
The Indian Government set up a Committee on Digital Competition Law on 6 February 2023 to study the need for an ex-ante regulation to tackle concerns about competition in the digital markets. While the report of the committee is still pending, this article suggests a more proactive use of the power of the CCI to issue interim orders as an alternative for ex-ante regulations. In order to do the same, this article is divided into the following: Section II examines the Competition Act 2002 (Act) and the decisions of the CCI on digital markets and argues that the present Act is flexible enough to cover the unique challenges posed by digital markets; Section III argues that the answer to handling competition concerns in digital markets lies in effectively using the powers granted to CCI rather than bringing another regulation. Section IV concludes.
Is the Current Competition Law Flexible Enough?
In this section, we shall analyze past decisions of CCI to understand the unique challenges posed by digital markets in India and the provisions under which the CCI has penalized those anti-competitive practices. The author briefly discusses four of the unique challenges faced by CCI while handling cases pertaining to the digital markets.
Defining the relevant market
One of the initial challenges of adjudicating cases related to digital markets was the determination of the relevant market. There are companies that sell their products both online as well as through brick-and-mortar establishments while there are e-commerce platforms that act as intermediaries. Defining the relevant market properly is especially important while adjudicating cases related to “abuse of dominance” under Section 4 of the Act. If the entire market of goods and services online and offline is considered as the relevant market then the e-commerce entities may escape the radar of CCI due to their absence from offline markets. Pre-2016, the position of law was that the offline and online markets differed only in terms of shopping experience and discounts and were merely two modes of distribution of products. However, the CCI in the case of All India Vendors Association v. Flipkart India moved on from the previous position of law and held that there is a difference between an online retail store which is just another mode of distribution, and an online marketplace platform. The CCI went on to highlight the distinguishing factors between an online marketplace and a traditional offline marketplace including the presence of network effects in the former. However, the difference between traditional and digital markets is still not very clear. For example, the CCI has yet not clarified the distinguishing criteria between the two.
Exclusive agreements are agreements between an e-commerce platform and third-party sellers where the seller agrees to list their products only on one platform. These kinds of agreements act as an entry barrier for new players and hinder competition. The presence of these agreements was observed in Delhi Vyapar Mahasangh v. Flipkart Internet (Delhi Vyapa’) and Rubtub Solutions v. MakeMyTrip India (MMT case). In Delhi Vyapar, the CCI observed that manufacturers such as Samsung, OPPO, and One Plus had launched several of their products on either Amazon or Flipkart. Similarly, in the MMT case, Treebo was asked not to list some of its hotels on the platform of two of MakeMyTrip’s competitors. In both cases, the CCI had held that these kinds of agreements can be examined under Section 3 of the Act. In the MMT case, the CCI had also held MakeMyTrip guilty of abuse of dominance under Section 4 of the Act.
Preferential listing and deep discounting
Preferential listing and deep discounting were observed in the Delhi Vyapar case where the concerned e-commerce platforms used to list their preferred sellers in the first few pages of search results and were further supported by terms such as “assured” for products of those sellers. The CCI also found evidence of communications between the e-commerce platforms and their preferred sellers for incurring a part of the discounts that were offered on their platform. The products were found to have been listed at a significantly discounted price, thus triggering predatory pricing. The CCI had observed that the preferential treatment coupled with the discounting prices can lead to an appreciable adverse effect of competition under Section 3 of the Act.
Price parity restrictions
Apart from the practices highlighted above, another anti-competitive practice that was observed in the MMT case was price parity restriction where Treebo was not allowed to list their hotels on any other platform at a price lower than that on MMT. Treebo had to accept the terms as MMT was a dominant player and de-listing their hotels from MMT would have caused a significant loss of business for Treebo. This agreement was intended to remove competition among platforms on the commission that they charge to hoteliers. This will ultimately lead to an increase in the commission charged which will ultimately trickle down to the consumers. The CCI had held that MMT had abused its dominant position and found MMT guilty under section Section 4(2)(a)(i) and Section 4(2)(c) read with Section 4(1) of the Act.
Therefore, from the analysis above, we can conclude that the CCI has successfully acted and penalized anti-competitive practices in the digital markets and a lack of provision was not felt. In the next section, the author highlights the problems that exist in the working of CCI that make fighting anti-competitive practices in the digital markets difficult.
The Forgotten Provision of Interim Relief
This section traces the application of interim reliefs by the CCI and call for a more proactive use of interim reliefs to curb the challenges of digital markets.
Use of interim reliefs by the CCI
The power of CCI to pass interim relief is provided under Section 33 of the Act. The application of Section 33 is guided by the decision of the Supreme Court of India in the case of Competition Commission of India v. Steel Authority of India Limited, where the court had devised a three-prong test for the application of interim reliefs. The three-prong test can be summarized as follows:
The CCI needs to be satisfied that a prima facie case exists and such prima facie satisfaction must be of a higher degree than that required under Section 26(1) of the Act.
The CCI needs to be satisfied with the necessity of passing such an interim order.
The CCI needs to be satisfied that if interim relief is not provided then the applicant will in all likelihood suffer irreparable damage or an appreciable adverse effect on competition would be caused.
There were a few other procedural guidelines that the Supreme Court of India had framed that need to be complied with before an order of interim relief can be provided. In effect, this order made the application of Section 33 extremely difficult. The CCI refused to provide interim reliefs in cases that went on for years pending investigation. For example, in Meru Travel Solutions Private Limited v. ANI Technologies where the CCI faced the problem of defining the relevant market for online cab aggregators, the case went on for years, but the CCI refused to provide interim relief and the competition concerns in the app cab market remained for years. The CCI’s view of interim reliefs changed to some extent after the decision of the Supreme Court of India in Uber India Systems Private Limited v. CCI in 2019 where the Supreme Court made it clear that the dominance in digital markets cannot be viewed in the same way as traditional markets and delays in arriving at a solution can cause an irrevocable damage to competition in the relevant market in case of digital markets. Following the decision of the Supreme Court of India in 2019, the CCI provided interim relief to the applicant in the case of Fabhotels where the CCI highlighted the dynamic nature of digital markets and the need for using the tool of interim reliefs in such markets.
Law on interim reliefs in competition law in the EU
The European Commission was empowered to provide interim reliefs by Regulation I/2003 under Article 8(1). Article 8(1) provides a two-prong test that needs to be satisfied before passing an order of interim relief. The two conditions in Article 8(1) are similar to prong (i) and (iii) of the three-prong test devised by the Supreme Court of India in CCI v. SAIL. One of the prongs calls for establishing a prima facie case and another requires the applicant to prove irreparable damage to competition. The requirement of necessity that is provided in the second prong of the three-prong test devised by the Supreme Court of India does not exist in the European Union.
Therefore, the law on interim relief is less stringent than the one currently existing in India. However, even though the law on interim relief is less stringent, it was hardly ever used. Similar to the CCI, the European Commission was also reluctant to issue interim measures until the Broadcom case where the commission issued interim measures after almost two decades. In recent times, multiple countries have relaxed the threshold for issuing interim measures, including countries like France, Germany, and the United Kingdom.
A proactive use of interim reliefs v/s an ex-ante regulation of digital markets
The fast-paced and dynamic nature of digital markets has already been discussed at length in this article. The fast-paced nature calls for a quicker response from the regulator. Bringing an ex-ante regulation will surely help prevent a lot of anti-competitive practices. However, it brings a bouquet of disadvantages in the form of overregulation and can ultimately have a chilling effect on innovation especially in a growing market such as that of India. Instead of an ex-ante regulation, the government should focus on fast-tracking the actions of the regulator.
The recently published draft settlement and commitment regulations is a step in the right direction. Settlement and commitment regulations along with a more lenient view towards adopting interim measures will make sure that steps against anti-competitive practices are taken at the earliest which will help counter the benefits of anti-competitive practices, especially the network effects at the earliest. Therefore, proactive use of interim reliefs provides a much better alternative to the adoption of an ex-ante regulation. Consequently, the law on interim reliefs, especially the decision of the Supreme Court of India in CCI v. SAIL, needs to be relooked.
In light of the above analysis, it is evident that the current Act does not lack provisions for tackling the unique challenges posed by digital markets. In this article, the author has highlighted some of the unique challenges the regulator faces in the digital markets and the corresponding provisions present under the Act for tackling the same. Therefore, the problem is not one of lack of regulations but of ineffective application of existing powers and provisions under the Act. A more proactive use of interim measures is only one among many such actions that can effectively curb anti-competitive practices in the digital markets. The introduction of ONDC by the government to facilitate fair practices is an example of how competition law concerns can be addressed other than diving into an ex-ante regulation that has not been tested anywhere in the world.