What is Abuse of Dominant Position under Competition Law?

Introduction

The Competition Act, 2002 (as amended), hereinafter referred to as "the Act," reflects the philosophy of modern competition laws, aiming to foster competition and safeguard Indian markets against anti-competitive practices by enterprises. It prohibits anti-competitive agreements, abuse of dominant position by enterprises, and regulates combinations (mergers, amalgamations, and acquisitions) to ensure they do not adversely affect competition in India. Specifically, Section 4[1] of the Act addresses the abuse of dominant position by enterprises. This article delves into the nuances of dominance and its abuse, shedding light on its relevance within the framework of competition law.

What is Dominance?

Under the Act, dominant position (dominance) is defined as a position of strength held by an enterprise in the relevant market in India, which enables it to:

• Operate independently of competitive forces prevailing in the market; or
• Influence its competitors, consumers, or the relevant market in its favour.

The key characteristic of dominance lies in an enterprise’s ability to act independently of market forces. In a perfectly competitive market, no single enterprise wields control, particularly over pricing. However, since perfect market conditions are more theoretical than practical, the Act enumerates various factors to assess whether an enterprise holds a dominant position.

Relevant Market

Dominance is meaningful only in the context of a defined "relevant market." The relevant market, as determined by the Competition Commission of India (CCI), may refer to:

• Relevant product market: Defined by substitutability, it encompasses products or services that are interchangeable given a small but significant non-transitory increase in price (SSNIP). For example, the market for cars could include separate product markets for small, mid-sized, and luxury cars due to their lack of substitutability on price changes.
• Relevant geographic market: Defined by homogeneity in competition conditions within a specific area, distinguishable from neighbouring areas. 

Factors to Determine Dominant Position

Traditionally, dominance has been associated with an enterprise’s market share. However, other factors contribute to determining an enterprise's influence, including:

• Market share;
• Size and resources of the enterprise;
• Size and importance of competitors;
• Economic power of the enterprise;
• Vertical integration;
• Consumer dependence on the enterprise;
• Market entry and exit barriers;
• Countervailing buying power;
• Market structure and size;
• Source of dominance (e.g., statutory backing);
• Social costs and obligations;
• Contribution to economic development.

The CCI may also consider additional factors it deems relevant in assessing dominance.

Abuse of Dominance

While dominance itself is not inherently anti-competitive, its abuse is. Abuse occurs when a dominant enterprise engages in exclusionary or exploitative practices within the relevant market. Section 4(2)[2] of the Act explicitly enumerates practices constituting abuse, which are prohibited if adopted by a dominant enterprise. These include:

• Imposing unfair or discriminatory conditions in the purchase or sale of goods or services;
• Imposing unfair or discriminatory prices, including predatory pricing;
• Limiting or restricting production, services, or market access;
• Restricting technical or scientific development to consumers' detriment;
• Denying market access in any form;
• Imposing supplementary obligations unrelated to the subject of a contract;
• Using dominance in one market to enter or protect another market.

Google LLC Case[3], a landmark case involving Google LLC, where the CCI imposed a substantial penalty for abusing its dominant position in the Android mobile operating system market. Google mandated that manufacturers pre-install its suite of apps, stifling competition from alternative app providers.

The CCI held that this practice limited competition and mandated corrective steps to enhance user choice. This landmark ruling emphasised that using a dominant position to gain an advantage in another market (in this case, mobile applications) constitutes a breach of Section 4[4].

In another landmark case, Fast Track Call Cab v. ANI Technologies (Ola)[5], In a dispute between Fast Track Call Cab and Ola, Fast Track accused Ola of predatory pricing practices. Ola allegedly offered discounts and incentives to drivers to monopolise the cab service market in Bengaluru. The CCI, however, ruled that Ola’s conduct did not breach Section 4[6], as it could not conclusively determine that Ola was the dominant player at the time. This case illustrates the need for clear evidence of dominance to invoke Section 4[7].

Exploitative and Exclusionary Behaviour

Abusive practices fall into two categories:

• Exploitative practices: Such as excessive or discriminatory pricing.
• Exclusionary practices: Such as denying market access or engaging in predatory pricing.

Predatory Pricing

Predatory pricing involves selling goods or services below the cost of production with the intent to reduce competition or eliminate competitors. The essential elements for determining predatory pricing include:

• Establishing the enterprise's dominant position in the relevant market;
• Pricing below production cost, as defined by CCI regulations;
• Intention to reduce competition or eliminate competitors (predatory intent).

Essential Facilities Doctrine

A major barrier to market entry arises when a dominant enterprise controls an infrastructure or facility essential for market access, which cannot be replicated reasonably or interchangeably. The "Essential Facilities Doctrine" mandates that a dominant enterprise share such a facility with competitors under specific conditions:

• The facility is controlled by a dominant firm;
• Competing enterprises cannot realistically reproduce the facility;
• Access to the facility is necessary to compete;
• Sharing the facility is feasible.

The CCI may order a dominant enterprise to share essential facilities if these conditions are met.

Subject to such conditions being satisfied and consistent with established competition law principles applicable to the specific case, the Commission may under the provisions of Section 4(2)(c)[8] of the Act (relating to denial of market access by a dominant enterprise) pass a remedial order under which the dominant enterprise must share an essential facility with its competitors in the downstream markets.

Intellectual Property Rights (IPRs) and Abuse of Dominance

While IPRs grant exclusivity to incentivize innovation, they may conflict with competition laws. The Act acknowledges this interplay by:

• Allowing reasonable conditions for protecting IPRs under Section 3[9] (anti-competitive agreements);
• Evaluating IPR-related dominance under Section 4[10] to ensure compliance with competition principles.

Thus, while reasonable use of IPRs is protected, abuse of IPRs in ways that harm competition is subject to scrutiny.

Inquiry into Abuse of Dominance

Under Section 19[11], the CCI may inquire into alleged abuse of dominance. It considers factors such as market share, enterprise size, consumer dependence, entry barriers, and social obligations under Section 19(4)[12]. If a prima facie case is established, the CCI directs the Director General to investigate. The CCI is vested with civil court powers, including summoning witnesses, requiring document production, and conducting searches and seizures.

Powers of the Commission

Post-inquiry, the CCI may:

• Direct discontinuation of abusive practices;
• Modify agreements causing abuse;
• Issue compliance directives;
• Impose penalties up to 10% of average turnover over the last three years;
• Order division of a dominant enterprise to prevent abuse.

Interim Orders and Appeals

Under Section 33[13], the CCI may issue interim orders restraining alleged abusive acts during an inquiry. Appeals against CCI orders can be filed with the Competition Appellate Tribunal (COMPAT) (established under Section 53A[14]) within 60 days. Additionally, Section 53N[15] allows individuals to claim compensation from COMPAT for damages arising from CCI findings.

International Perspective on Abuse of Dominance

Global regulatory bodies share similar views on abuse of dominance, as monopolistic behaviours negatively impact consumers and competitors. The European Union, under Article 102 of the Treaty on the Functioning of the European Union (TFEU)[16], has extensive provisions addressing dominant positions, focusing on pricing, output restrictions, and market entry barriers. The United States enforces similar provisions under its antitrust laws, prohibiting monopolistic practices that limit competition.

The World Trade Organisation (WTO) also supports anti-monopoly regulations to foster international trade. Many countries, inspired by these frameworks, aim to safeguard consumer interests and promote healthy competition, emphasising that dominance itself isn’t an issue, abuse of dominance is.

Conclusion

Competition law must strike a balance between allowing market leaders to grow and preventing abuse. For instance, companies with innovative products and patents hold a competitive edge, which can attract customers. However, when they use this edge to exploit consumers or restrict new players, intervention becomes essential. Regulation should aim to protect the market’s integrity without stifling the growth and creativity that come with market success.

The Competition Act, 2002, meticulously addresses abuse of dominant position to maintain market fairness and promote healthy competition. By defining dominance, identifying relevant markets, and outlining factors for determining abuse, the Act ensures a balanced approach to regulating enterprise behaviour. While dominance itself is not anti-competitive, its misuse disrupts market dynamics, harms competitors, and undermines consumer welfare. Through rigorous inquiry and enforcement powers, the CCI plays a pivotal role in safeguarding competition and fostering economic development.

[1] The Competition Act, 2002, s. 4.

[2] Id. at s. 4(2).

[3] 2023 SC 88.

[4] Supra at 1.

[5] Case No. 6 & 74 of 2015.

[6] Supra at 1.

[7] Ibid.

[8] The Competition Act, 2002, s. 4(2)(c).

[9] Id. at s. 3.

[10] Supra at 1.

[11] The Competition Act, 2002, s. 19.

[12] Id. at s. 19(4).

[13] Id. at s. 33.

[14] Id. at s. 53A.

[15] Id. at s. 53N.

[16] The Treaty on the Functioning of the European Union, art. 102.

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