MILLENNIAL COMPLICATIONS: COLLECTIVE DOMINANCE & HORIZONTAL MINORITY SHAREHOLDING
Updated: May 8, 2020
This post has been authored by Kritika Narayan and Lubhanshi Rai, B.A. LL.B (Hons.) candidates at Amity Law School, Delhi.
The Indian Competition law watchdog, in the run up to 2020, has faced issues novel to the neonate Indian competition law jurisprudence, which it often has brushed aside on grounds of non-inclusivity in the present competition law regime. The result is default legalization of such practices. In 2017, for instance, Meru Travel Solutions approached the CCI against Uber & Ola, inter alia, alleging abuse of dominance by the two cab service providers, on account of structural links between them, in the nature of minority shareholding and interlocking directorates. Although recognising theories of harm concerning such common ownership[i], the CCI dismissed the case, leaving room for intervention later[ii]. The present article throws light on this chain of events i.e; collective dominance, invocation of ‘Single Economic Entity Doctrine’ (SEE) and the resultant problems if the case under SEE is of minority shareholding.
Collective Dominance Abuse
Collective dominance has been a quintessential example of issues absolutely disregarded by the competition authorities, having been unsuccessfully pleaded upon and consistently rejected by the Competition Commission of India (hereinafter, “CCI”)[iii] while a contrario sensu Article 102, TFEU (Treaty on the Functioning of the European Union) expressly recognises abuse of dominance by one or more enterprises[iv].
The concept, as the name suggests, entails a situation where two or more independent enterprises jointly hold the position of dominance in the concerned ‘relevant market’[v], possibly owing to economic links or relationship at horizontal level, adopted ‘formally or informally’[vi] as a common strategy to achieve business purposes.[vii]
As was unsuccessfully pleaded[viii], a singular word according to the General Clauses Act includes its plurals. Resultantly, an unsuccessful attempt at establishing collective dominance could culminate in two possibilities depending on either of the two situations that the case falls in :
(i) Competing firms cumulatively enjoy a dominant market share and abuse this dominant position, while individually holding non-problematic minimal market shares in the relevant market[ix] (eg. 15% + 15% + 10%) or ;
(ii) Competing firms cumulatively enjoy a dominant market share and abuse this dominant position, albeit one of them also holds an individual position of dominance (eg. 40% + 5% + 7%)
Assuming that we were to go to the tribunal with these two cases, after facing rejection of our claim of abuse of a position of collective dominance, in accordance with CCI’s precedents, there would be a less helpless position in case (ii) as compared to case (i), since against one enterprise the argument of individual dominance could be arguendo pursued. However, from here certain complications surface. What remains the route available for the informant in case (i)? Section 4, in the opinion of the CCI cannot accommodate our claims, being limited to individual dominance. But our firms are not individually dominant in the relevant market. The only way forward then could be to plead anti-competitive behaviour in terms of ‘Section 3 of the Act’[x].
Single Economic Entity: Minority Shareholding
Without prejudice to the previous arguments of proceeding for a case of anti-competitive behaviour in case (i), there can also be a way forward to proceed u/s 4. The present discussion addresses the way forward of pursuing such action u/s 4, though with prejudice to the action under Section 3. Since in case (i) every entity held only non-dominant shares, the only way to prove their dominance together would be to establish them as a “group” u/s 4. For calling them a “group” , the informant(s) might want to use the doctrine of ‘single economic entity’ (hereinafter ‘SEE’) if there exists provable structural links between undertakings, as a way to attack abuse of collective dominance while legally still treating them as ‘single’. This can be done as Section 4 recognises abuse of dominance by a “group” and SEE is one way in which we can prove them to be a group. However as pointed out earlier that an action under S.4 will prejudice our action u/s 3, since while the SEE doctrine could be a mode of attack to apply S.4, it operates as a shield for Article 101(1)[xi], TFEU (which is in consonance with Section 3, Competition Act, 2002). This is because Section 3 or Article 101(1) are concerned with possible anti-competitive effects, occurring out of the agreement between two or more independent entities and thus, cannot be made applicable to intra-entity agreements. Thus, the use of this doctrine needs to be carefully analysed to avoid unwanted repercussions because once pleaded it could render the alleged anti-competitive acts immune from the ambit of Section 3, thus the choice is then between pursuing action under section 3 or section 4, or alternatively pursuing it under both in order to obtain a remedy under one (depending upon whether the claim of SEE is established) since these are inconsistent remedies.
The SEE doctrine recognises economic, organisational and legal links[xii] between different legal entities which are tested on a touchstone of “decisive influence” or “control exercised”[xiii], one of which could be in the form of ‘Minority shareholding’. The discussion from hereon will analyse the third case in the light of the acquisition of minority shares by Soft Bank of rival enterprises Uber and Ola.
Minority shareholding exists “when a shareholder holds less than 50% of the voting rights or equity rights in a target firm…”.[xiv]
In case such minority shareholding is active (shareholding with voting rights, or a seat in the board of directors) it facilitates tacit collusion as not only does it enable availability of commercially sensitive information of competing firms to common owners but also it enables the common owners to influence decisions of these rivals to soften their aggressive competing strategies, since common owners will not benefit from one company acquiring the customers of another by cutting costs. Common shareholding and resultant coordinated behaviour have been evidenced in various sectors abroad, usually by price increase like in the case of Apple-Microsoft[xv], JP Morgan- Bank of America- CitiBank[xvi], as the strategy is to coordinate price increase to make profits, contrary to the earlier approach of slashing prices to attract the competitor’s customers.
Demystifying Information Exchange
The above discussion gives rise to a host of questions : Would Information Exchange Between Common Investors Of Companies Amount To Information Exchange Among Companies? Would Common Investors Amount To Information Exchange Among Companies?
Minority horizontal shareholding among competitors also raises certain other issues, one being of information exchange that will follow among competitors due to common investors. “Information exchange”[xvii] is one of the main factors, being taken into consideration, to adjudicate the actual anti-competitive effects caused by horizontal minority shareholding. The Guidelines on horizontal information exchange[xviii] & precedents, suggest the existence of a presumption (although rebuttable) under EU law[xix] that contact developed between competitors through horizontal minority shareholding, leads to a common conduct on the market.
The law as it stands under the EU jurisprudence is that receipt by competitors of information on future conducts of competitors can be penalized[xx], however this is when due to no structural links, competitors have to meet to gather such information and these meetings themselves can qualify as anti-competitive meetings.
However, in the present case of common investors, no express meeting of minds will be required but the EU law then recognizes that there needs to be only a causal link between the mental consensus and the concerted practice,[xxi] what becomes then the question is whether contact between investors/ commonality of investors would amount to contact between competitors for the purposes of information exchange, which can be adjudged only in light of factual merits of the case.
Considering the fact that our competition jurisprudence has more or less been pulled out from that of European Union and U.S.A., it’s grossly erroneous on part of the CCI to altogether and repeatedly reject this new concept on account of strict interpretation of the Act. Had the statue been perused as a whole, with the aid of ‘objective’ and ‘background’, one would have understood that since the statute individually prohibits horizontal coordination vide Sec.3 and abuse of dominance vide Sec.4, any indirect way of achieving the same result i.e. horizontally coordinating for abuse of dominance would also be prohibited since what one cannot do directly, she cannot do indirectly.
There is therefore, in the words of the CCI, “a long path ahead in this direction” where hopefully these issues will be raised, discussed and addressed.
[i] Meru Travel Solutions v M/s ANI Technologies and ors. (Case No. 25-28 of 2017) ¶52 [ii] Supra ¶57 [iii] See Ashok Kumar Vallabhaneni v Geetha SP Entertainment LLP, Hyderabad and others 2019 Indlaw CCI 20, Builders Association of India Informant v Cement Manufacturers Association and others 2016 Indlaw CCI 77, Sonam Sharma v Apple Incorporated USA and others 2013 Indlaw CCI 18, Sanjeev Rao vs. Andhra Pradesh Hire. [iv] The first case to address collective dominance under erstwhile Art. 82 EC (now Art. 102) was Italian Flat Glass: Joined Cases T-68/89, T-77/89 and T-78/89, Societa Italiana Vetro SpA, Fabbrica Pisana SpA and PPG Vermante Pennitalia SpA v Commission  ECR II-1403. [v] The factors taken into consideration to determine ‘relevant market’ have been provided under section 19(5), (6) & (7) of the Act. [vi] Section 2(b) of the Act, defines “Agreement”, which is inclusive of informal arrangement or mutual understanding. [vii] Almelo (Case C-393/92  E.C.R I-1477). [viii] Supra footnote 2. [ix] Noida Software Technology Park Ltd. Informant And Star India Pvt. Ltd. and ors. (Case No. 30 of 2017). [x] Section 3 forbids anti-competitive agreement entered into between enterprises operating either at horizontal or at vertical level. [xi] Richard Whish and David Bailey, Competition Law, 93 (9th ed. 2015). [xii] Id at 95. [xiii] Id. [xiv] OECD, Policy Roundtable, “Minority Shareholding”, DAF/COMP(2008)30. [xv] José Azar, Martin C. Schmalz & Isabel Tecu, Anti-Competitive Effects of Common Ownership note at 48 tbl I (Univ. of Mich. Ross Sch. of Bus., Working Paper No. 1235, 2015). [xvi] José Azar, Sahil Raina & Martin C. Schmalz, Ultimate Ownership and Bank Competition Jan. 8, 2016), http://ssrn.com/abstracts2710252 [https://perma.cc/UD9E.] [xvii] “information exchange” among competitors may have anti-competitive effects. See, OECD, Policy Roundtable, DAF/COMP(2010)37. [xviii] Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (2011/C 11/01). [xix] Huls AG v Commission EU:C:1999:358, ¶163. [xx] Bananas cases: Fresh Del Monte Produce Inc v European Commission (T-587/08)  4 C.M.L.R. 30 and Dole Food Co Inc v European Commission (T-588/08)  4 C.M.L.R. 31. [xxi] Moritz Lorenz, An Introduction to EU Competition Law, 87 [1st ed. 2013] see also; Case C-199/92 P-Huls  ECR I-4287, ¶160.