ABUSE OF COLLECTIVE DOMINANCE: NEED FOR RECOGNISING THE CONCEPT IN INDIA
The Editorial Column is authored by Srishti Kaushal and Diya Vig, Associate Editor and Assistant Editor respectively, at RGNUL Financial and Mercantile Law Review.
Collective dominance refers to a situation wherein two or more enterprises jointly hold the position of dominance in the recognised market. Abuse of such collective dominance is observed when such multiple undertakings, who may individually hold minimal market share, form such common conduct or relationships that they act together in a way that there is no effective competition between them, at the expense of other competitors. This concept is not recognised by the Competition Commission of India (“CCI”). This article seeks to examine the Indian jurisprudential position with regards to collective dominance along with the international approach, to argue that there is a need for recognition of the concept in India to avoid harmful ramifications in the development of Indian Competition Law.
2. Indian Competition Law and Collective Dominance
The status quo of the recognition of dominance as a whole is divided as of now. The present legal scenario recognises dominance by a single entity only and does not recognise dominance in a market by two or more entities. Section 4 of the Competition Act, 2002 (“the Act”) prohibits abuse of dominance by an enterprise or an entity that holds a dominant or a position of importance in that particular market. The term ‘dominant position’, as defined in explanation (a) to Section 4, refers to, “a position of strength which enables an enterprise in the relevant market to operate independently of competitive forces prevailing in the relevant market or affect its competitors or consumers or the relevant market in its favour.” As per the inference that can be drawn from this particular section, dominance in a market can be held by one enterprise only. Hence, the absence of recognition of the concept of collective dominance, by cartelization or other groups can be pointed out and ruled by this section.
There are various legal occurrences, where appropriate and needful action against a group of entities has been denied due to the loophole and void in the law. The CCI dismissed allegations of abuse of power by some non-banking financial institutions and banks in the practice of collecting uniform penalties on prepayments of home loans in Niraj Malhotra v. Deutsche Post Bank Home Finance in 2009. Section 4 was deemed irrelevant since none of the banks or financial institutions 'individually or single-handedly' possessed a dominating position. The following case highlighted the lacuna in the law and the need for the Act to acknowledge collective dominance.
Further, in Delhi Vyapar Mahasangh v Flipkart International Private Limited and Amazon Sellers Services Private Limited as well, the CCI noted that the Act does not recognise joint/collective dominance. It thereby dismissed the allegations against Amazon and Flipkart under Section 4 of the Act, disagreeing to carry out the assessment required to find if the entities were abusing their market power. Instances like these highlight the free hand with which the big players of the market engage in unfair practices and go unpunished.
Recently, in the case of Ashok Kumar Vallabhaneni v. Geetha SP Entertainment LLP, the CCI observed that the Act in the Indian legal system does not recognise the alleged concept of “collective dominance”. Here, the defendants, functioning in Andhra Pradesh and Telangana, were engaged in the production and distribution of movies. Plaintiff, in the following case, was denied a sufficient number of screens, for his movie “Petta” by the defendant, while other such movies were provided with more screenings in theatres, that too without proper justification or interference. Plaintiff contended that the conduct of the defendants affected the competition in the field adversely and also negatively impacted viewership. The plaintiff contended that the alleged conduct by the defendants violated Section 3(3)(b) of the Act, dealing with anti-competitive agreements/practices that limit or control production. Thus, it was alleged by the plaintiff that the conduct and actions of the defendants violated Section 4 of the Act, by restricting the Telugu film industry and abusing their dominant position in the industry. The plaintiff further argued that the defendants indulged in monopolizing the market against the entry of new players, which in turn led to the incurring of huge losses by the plaintiff. The CCI, in the following case, ruled that “what the Act under Section 4 contemplates is the abuse of dominant position by an enterprise or a group rather than abuse of a dominant position of collective dominance by more than one entity.” The commission also observed that there was no evidence relating to cartelization in the following case and the case precluding to collective dominance had to be ruled out due to the non-recognition of the concept in the Indian legal system. The CCI in the conclusion of the case at hand observed that there was no violation of Section 3 and 4 by the defendants. After yet another case of collective dominance, the need for legislation against abuse of collective dominance was felt.
In order to put a restriction and end to this lacuna in the law, The Competition (Amendment) Bill, 2012 ("the Bill") was introduced and aimed to expand the scope of Section 4. By inserting the terms "jointly or singly" directly after the words "or group" in Section 4(1) of the Act, the Bill aimed to address circumstances when parties are collectively dominant in the market. Regrettably, the Bill did not succeed in becoming a law due to strong opposition in the parliament. Thus, the position as of now remains stringent that the Act does not recognise Collective Dominance.
3. International Recognition of the Concept
The concept of Collective Dominance is perhaps most widely acknowledged in the European Union (EU). The Treaty on the Functioning of the European Union ("TFEU") provides for the concept of abuse of dominance under Article 102, where such abuse can be done by “one or more undertakings”. This concept was first recognised in the Italian Flat Glass Case, the Court that “there is nothing, in principle, to prevent two or more independent economic entities from being, on a specific market, united by such economic links that, by virtue of that fact, together they hold a dominant position vis-à-vis the other operators in the same market”. While the Court of justice held that collective dominance can’t be established solely by the existence of economic links, the concept was understood to be within the purview of Article 82 of the Treaty (now Article 102). Since then, this concept has found vast usage in the EU. The same has later also been recognised in several cases, including Compagnie Maritime Belge Transports a.o. v Commission and Atlantic Container Line and Others v. Commission.
This concept has also been recognised with respect to merger control in cases including, Bertelsmann and Sony Corporation of America v Impala and Airtours PLC v. the Commission. In both these cases, the Court observed that the concept of collective dominance is included with Article 2 of European Union Merger Regulations.
The concept is also recognised in Canada. This is evident by the Enforcement Guidelines, which provides that in assessing if one or more persons control a class or species of business to establish dominance, ‘one or more persons’ would be interpreted to include the position of joint dominance. Similar provisions can also be found in other jurisdictions, like China and Russia.
Collective abuse of dominance must not go unpunished, especially in a developing country like India. This lacuna in law has horrendous repercussions. As some firms gain a collective dominance position, they are able to impose restrictive conditions in the market, as a result of which the smaller players are not able to effectively compete with them. As these players adopt similar pricing and non-pricing strategies, consumers are left with very low bargaining power such that they have no other option other than accepting the goods or services on the terms and conditions which are prescribed by the dominant players. The presence of such dominant players may also create barriers to entry because these close-knit firms tacitly collude with each-other, restricting resources amongst themselves and imposing unfavourable conditions that make the market unfavourable for new players.
While some people compare such a situation to that of entities forming a cartel or entering into horizontal agreements (which are already penalized by the Act under Section 3), to restrict such behaviour under these a written contract between the parties is required. Thus, owing to the lack of restriction to abuse of collective dominance, situations have such effects which are de facto similar to that of having non-competitive agreements or cartels go unpunished.
Moreover, it may also be noted that Section 5 of the Act, which provides for the regulation of combinations, while defining control to prevent a combination that may have anti-competitive effects in the future provides that such control can be acquired by one or more companies either jointly or singly over another enterprise. Thereby an entity is said to have control if it already has direct or indirect control over another enterprise engaged in producing, distributing, or engaging with a substitutable good/service. This is not allowed under the Act as in such circumstances, the controlling entity has the ability to adopt a common policy on the market and act independently of the competitors and consumers. Thus, through this, the Act prevents tacit collusion and possible abuse of collective dominance of two or more enterprises that are united by economic links. It makes little sense to not allow combinations to prevent possible abuse of collective dominance and yet not punish it when it happens by way of multiple entities abusing their collectively dominant position in the market.
By not recognising the concept, individually non-dominant firms evade liability, simply because they do not have the market share to attract the provisions of the Act. However, it should be recognised that market power, as opposed to market share, is at the core of fair competition, which is one of the primary aims of the Competition Commission of India.
The concept of collective dominance, which is still in the initial stages of recognition in the Indian law, is yet another pillar of the legal regime, that shall ensure fair competition amongst the forces of the market. Incorporating “individually or collectively” in Section 4 of the Act and making the provision in consonance with the European counterpart would equip the Indian competition authority with another instrument to monitor market competition from a new perspective. To protect the interests of the players in the market, and those of the consumers, it is very crucial to ensure that the forces involved are at peace in cohabitation and that there is equal chance and fair competition in the field.
In this approach, the market's essence is preserved while apparent artificiality is constantly weeded out. Instead of dismissing the claims as being outside the scope of the law, the best course of action today is to address the concerns and find an acceptable solution. By ignoring the concerns of the impacted parties and eventually departing from the law, these loopholes would only spawn anti-competitiveness.