Author name: CBCL

[By Jatin Lalwani] The author is a student at the National Law School of India University.   The last month once again saw the rejuvenation of the debate around a breakaway football league with the announcement of the European Super League. However, the time bomb was diffused within 72 hours amidst widespread criticism and threats of bans despite Florentino Perez stating that they have a strong legal case. Although the proposal involved various legal issues, much of the debate surrounded Competition Law which will also be the focus of this article. Soon after the announcement of the Super League, the UEFA President warned the clubs involved and their players of the potential bans from competitions. This was based on the controversial Article 49 of the UEFA Statutes which states that UEFA will have the sole discretion to organize or abolish any competition in UEFA territory. Further, the competitions which are not organized by UEFA but are organized on its territory must take prior permission from FIFA or UEFA. The failure to follow this would lead to disciplinary measures under various codes and will attract bans. This rule is the central point of debate around the Competition Law issues in Europe. European Competition Law and Sports: The application of competition regulations to sports has a long history. The judgments of the Court of Justice in the cases of Walrave, [1] Dona,[2] Bosman[3] specified that sports will be subject to competition regulations. A sporting exception was created to exclude the activities which are purely sporting in nature and do not involve any economic element. However, the case of Meca–Medina[4] has dismissed this exception by stating that the purely sporting nature by itself is not sufficient to exclude the activities from the competition regulation. Article 101 and 102 of The Treaty on the Functioning of the European Union (TFEU) provides for anti-competitive agreements and the abuse of dominant position respectively. Article 101 applies to both undertakings and associations of undertakings while Article 102 applies only to undertakings. The CJEU has consistently interpreted undertakings to include entities engaged in economic activity regardless of its legal status. It does not look at the objective of the entity for the determination of undertaking. Like other sports associations, FIFA and UEFA follow a pyramid structure with various clubs forming part of it and hence can be classified as associations of undertakings. Although associations of undertakings are excluded from Article 102, the Commission has clarified that sports associations normally can be considered dominant undertakings for the purpose of Article 102. Anti-Competitive Agreements and Abuse of Dominant Position: For any action to be covered under Article 101 there must be an agreement, decision, or concerted practice. In relation to sports, it should be first ascertained whether the rules by the sports associations regarding bans, expulsions (loyalty clauses) could be considered agreement, decision, or concerted practice. In one of the cases against FIFA, it claimed that such rules cannot be classified under the mentioned categories. However, it was rejected and held that such rules are covered under decisions by the undertakings. A similar position has since been followed by the Commission in subsequent cases as well. The competition law in Europe does not prohibit holding a dominant position in a market. It is only when abuse of such dominance occurs that the Commission steps in. Abuse of dominant position occurs when an entity inhibiting dominance in a market uses it to eliminate an existing competitor or prevents a competitor from entering the market. For a claim of abuse of dominance, the first step is to establish the dominance of such undertaking. Most of the sports associations enjoy monopoly in the market as they are the sole organizer and regulator of the sport involved and hence are dominant. Further, even if we look at other factors such as economic strength, market structure, independent behavior, the sports association will still be considered dominant. It has been even held that undertakings enjoying super-dominance in a market which have powers like a quasi-monopoly have stricter obligations to prevent abuse. Some authors have argued that since the clubs form the central part of the decision making in these sports associations and the threat of breakaway league have led to the meeting of demands, the associations cannot be considered dominant in presence of countervailing buying power.[5] The recent European Super League saga has although proved contrary to the assumption. Even if it were to happen, the proposition misses out on the fact that the presence of countervailing buying power only exists when multiple clubs come together. Single clubs would not have recourse to any other competitor and hence sports associations will function independently of any forces in the market even if the threat is given by a single club and hence, still hold a dominant position in the market. Loyalty clauses as a threat to competition: Almost all the statutes of the sporting associations at all levels provide for loyalty clauses. Since the early 2000s, these clauses have been a constant area of scrutiny by the national courts and the European Commission. Most of these cases have dealt with the rules on participation in non-authorized events or sanctioning of such events. Although, sanctioning rules are not anti-competitive by itself, they must be looked at from the lens of the objective test and the proportionality test as has been propounded by the CJEU. However, these tests have only succeeded as a defense when the rules are necessary for attaining uniformity in the sport and in the public interest such as rules of play, anti-doping etc. The sanctioning rules for a new competition or participation in them have been held to be anti-competitive in nature. The conflict of interest between the regulatory and the commercial functions of the associations has been looked at by the courts. The first major case concerning this conflict of interest was related to Fédération Internationale d’Automobile (FIA) which is the international body for motor sport.[6] It issued a license for participation in

[By Kunal Singh] The author is a student at Vivekananda Institute of Professional Studies, GGSIPU. Overview Last year Apple announced to cut down the commission rates charged from developers, with less than $1 million revenue, from 30% to 15% on in-app purchases. Following the footsteps of Apple, Google recently announced that it would drop the rate of commission charged on in-app purchases from 30% to 15% for developers that sell in-app digital goods on its Play Store. This concession will be available to the developers for the first $1 million revenue earned utilizing the Play billing system each year. The truncated fee will apply to the developers starting July 1, 2021. While this move by Google, at first sight, may look benign and propitious for developers, it entails significant anti-competitive concerns with it. In this article, the author argues that this move by Google qualifies as an abuse of the dominant position and analyses the probable outcomes against the backdrop of this announcement. Identifying the Key Anti-competitive Issues Albeit the announcements by both Apple and Google have caused a discourse among the startup community, they differ on the nature of charging commissions. Apple had announced that once a startup has crossed its $1 million revenue threshold, it would be charged 30% of the service fee; on the other hand, Google announced that it would provide $1 million revenue relaxation every year. Separating the variability between these two announcements, they coincide on one aspect that they foreclose the competition in the relevant market of in-app purchases (‘IAP’). Before establishing that both these tech giants have abused their dominant position, it would be prudent to delineate the relevant market of IAP in which they yield their influence. In-app purchasing refers to purchasing of goods and services from within the mobile application on a mobile device. Initially, it sanctions developers to offer their goods and services for free, then later situate them in a position to charge for upgrades as paid feature unlocks and special items for sale. This IAP allows developers to accrue profit even if they sell their product for zero cost initially. Now, application stores such as Google’s Play Store and Apple’s App Store allow users to download applications with the inbuilt feature of IAP and simultaneously charge developers a particular portion of the sales, which is 30% in this case, made by them through IAP. Charging a particular portion of the total sales may not look anti-competitive, but the conditions precedent to it may draw the attention of antitrust watchdogs. Both Google and Apple require developers to use their respective billing systems to give effect to transactions cognate to IAP. The author argues that binding developers to only use their respective billing systems for IAP tantamounts to directly imposing unfair and discriminatory conditions in the sale of goods or services, as provided under Section 4(2)(a) of the Competition Act, 2002 (‘The Act’). This arbitrary condition is three-pronged; firstly, it leaves developers with no choice but to use their respective billing systems; secondly, it denies the market access to other rival competitors in the relevant market of IAP; thirdly, both Google and Apple are using their dominant position in the market of operating systems (‘OS’) to influence and foreclose the competition in the separate and distinct market of IAP. Is binding developers to use respective billing systems unfair? The decision of Google making it mandatory for the application developers to use its billing system is a take-it-or-leave-it condition. It implicatively insinuates that if developers do not comply with this guideline, they might run the peril of losing access to a large number of users in India, thus being highly dependent on Google. This take-it-or-leave-it condition is in line with WhatsApp’s recent update regarding its privacy policy, where it mandated users to give their consent to the sharing of their data with Facebook if they wish to continue using WhatsApp. The Competition Commission of India (‘Commission’), in its order, noted that such conduct amounts to the imposition of unfair terms and conditions on the user as it leads to the degradation of non-price parameters such as quality, which violates Section 4(2)(a) of the Act which deals with abuse of dominance. As of 2020, Google has about 95.23% of the market share in the relevant market of OS in India, making it a dominant entity in the market of OS. Since Google has a dominant position in the relevant market, it would be prudent to surmise that almost all the application developers have their applications hosted on the Play Store, which leaves them with no option but to accept the terms and conditions of Google if they do not want to lose their market share. It can be said that the acts of Google are in congruence with the prominent concept of leveraging. While one may argue that how this concept, which is related to stock markets, is related to Google, the core concept is still the same. Leveraging is borrowing extra capital or funds to increase the potential return from an investment thus causing an advantage to the stakeholder. In the case of Google, the dominant position is the extra capital, which it uses to gain an advantage over the other market players. As has already been discussed that Google has about 95.23% market share in the relevant market of OS in India, it is thus leveraging its dominant position to gain an unfair advantage over the industry players in the relevant market of OS. A classic example of losing the market share due to non-compliance happened in the late last year when Epic Games allowed users to purchase Fortnite’s in-game currency directly, thus bypassing Apple’s IAP framework and the substantial 30% cut that Apple takes, which led to Apple banning the game from App Store. As of now, Google has not taken such action against any developers, but it could be a probable course of action if developers do not comply. Thus, the author believes that the take-it-or-leave-it nature

[By Vijpreet Pal]   The author is a student at National Law Institute University, Bhopal. Introducing The Subsisting Punitive Framework The primary goals of Competition Law are to abolish anticompetitive practices, encourage competition and to protect consumer interests. For the effective fulfillment of these goals, there are three broad frameworks adopted by various nations throughout the world i.e. (a) Civil Sanctions, (b) Criminal Sanctions, and (c) Mixed. India has adopted the enforcement based on fines and other similar civil remedies. It is always contended that the enforcement regime based on fines has less deterrent effect as compared to Criminal sanctions. Even the historical background of various nations shows the usage of Criminal sanctions to detect, prevent and punish the prevailing malpractices in the market. The author in the article will examine whether the Criminal sanctions are desirable in the Indian Competition Law regime by drawing comparative analysis of the nations that shifted from Civil sanctions to Criminal sanctions and even vice-versa. The author will further delineate the challenges on the path of implementing the Criminal sanctions and then put forth viable solutions to tackle those concerns. Insights From The Punitive Framework Of Other Jurisdictions Similar to India there are various other nations like China, Hungary, Ethiopia, Peru, etc. who have retained Civil punishments. There are other nations that initially adopted the Criminal framework but later switched to Civil enforcements mechanism like the Netherlands where the concerned authority can now only impose an administration fine or an order subject to penalty for non-compliance, in proportion to the infringement committed. Similarly, in Luxembourg, the original Criminal sanctions were replaced by Civil sanctions. Now, its Competition Act does not per se provide for Criminal penalties under Article 101/102 of the Treaty on the Functioning of European Union(‘TFEU’) however, some infringements could subsequently lead to violation of Article 311 of the Luxembourg Penal Code. On the other hand, some nations have criminalized anti-competitive practices and imposed Criminal sanctions like the Antitrust Laws of USA: there are three antitrust laws in USA i.e. Clayton Act of 1914, Sherman Act of 1890 and Federal Trade Commission Act, 1914 amongst which Sherman Act involves Criminal penalties against anti-competitive agreements. There can be imprisonment for the period of 3 to 10 years along with a fine of amount US$ 350,000 to US$ 1 million. The enforcement mechanism of New Zealand and Canada also developed imposing Criminal liability with imprisonment up to 7 years and 14 years respectively for serious anticompetitive practices like price-fixing, bid-rigging, market sharing, etc. Belgium’s Competition Act enforces Criminal sanctions for Cartel infringes whereas, in Germany, Criminal punishment is confined to Bid-rigging only. In several other nations like Armenia, Japan, Mexico, Republic of Korea, South Africa, Thailand, Brazil, Australia, etc. criminal liability is imposed in cases of severely anti-competitive behavior. Exigency Of Criminal Punishment In India’s Competition Law Regime The deficiency of the Civil punishments in curbing the malpractices could easily be seen in the Indian Competition Law. There are instances that manifestly demonstrate that even if fines in the millions of rupees are levied still the offender would be unaffected because they are making significant profits out of their malpractices and often have large assets. Resultantly, in most situations, the offender is willing to pay this insignificant sum and continue with their anti-competitive practices. They make a prior estimation of the benefit which they will reap and also the penalty which could possibly be imposed if they are caught violating the Competition Laws. There are other more contentions and justifications in favour of the imposition of Criminal sanctions like the notion that Criminal sanctions have a greater deterrent effect because it incapacitates the violator from committing future crimes and also, as stated earlier, fines imposed on the violator are lesser in comparison to the profit they gained. Jerome Bentham and Stuart Mill propounded a political philosophy called ‘Utilitarianism’ i.e. ‘greatest number of goods for the greatest number of people in the 19th CE. It supports the Criminal sanctions by postulating that if imposing Criminal punishment does more good and less pain, then it is justified. Furthermore, the Retributive theory of punishment entails that the criminals should be met with an equal amount of pain. German Philosopher Immanuel Kant argues that “retribution is not just a necessary condition for punishment but also a sufficient one. Punishment is an end in itself. Retribution could also be said to be the ‘natural’ justification”, in a way that it is quite natural and just that a bad person ought to be punished and a good person rewarded. Consequences of the Criminal sanctions like the resultant impact on the family and hostile reaction of the society also stigmatizes the act which has a deterrent impact. Apart from the philosophical reasons, there are pragmatic reasons as well which legitimizes the Criminal punishments for example, liability in most of the cases are imposed only on the company and not on the directing minds, thereby fines levied from the company does not give assurance of the accountability of the Directors of the company and they are left scout free. Further, in the age of developments, there is no territorial limit of malpractices and thence, the competition law must accommodate the extra-territorial application of its provisions. However, Civil Competition Law cannot be applied in other nations as every nation is sovereign under International Law but there are multiple principles like active nationality, passive nationality, etc which legitimizes the extra-territorial application of the Criminal Competition Law. For instance, Section 3 and 4 of the Indian Penal Code,1860 provide for extra-territorial jurisdiction. Challenges To Enforce Criminal Sanctions The biggest challenge is the component of Mens-Rea along with Actus-Reus, which is required to be established beyond reasonable doubt in Criminal matters however, in Civil matters, there is a preponderance of probability. The second main challenge is accountability i.e. who should be made accountable for the act because the malpractices are carried out in the name of the corporation but the mind behind is of the

[By Akanksha Agrahari & Arjun Nayyar] The authors are students at the NALSAR University of Law, Hyderabad.  Introduction WhatsApp was heavily featured in the news recently when the Competition Commission of India took suo moto cognizance of the updated privacy policy and terms of service for its users. Due to its extremely large user base, as well as the network effects associated with it, the Commission held that users were left with no other option but to accept the updated conditions. Hence, Whatsapp’s actions were found to be in prima facie abuse of its dominant position, a view which was upheld by the Delhi High Court. It raises certain concerns regarding the dominant position held by companies by virtue of their ability to manipulate consumer behaviour. This isn’t a unique instance wherein WhatsApp was called into question for its ability to influence the market and its users. Previously, WhatsApp was fined 3 million Euros by the Italian Competition Authority for abusing its dominance. This post analyses various concepts of behavioural economics using which competitors can obtain a dominant position and influence their user base. Understanding Behavioral Economics The CCI has on many instances discussed factors that compound a firm’s dominance in the market and lead to an abuse of its dominant position. The order in the WhatsApp case follows an extensive analysis of network effects and how they have led to the app reaching a position where it is difficult for the users to switch to any substitutes. Such companies use certain tactics and human tendencies to build a user base and subsequently abuse it. This dependence of the consumers on one platform may lead to a denial of market access to competitors. Network Effects of Scale and Tipping The larger the consumer base of a platform, the more inclined a consumer would be to use it. Network effects relate to an increase in the desirability of a platform due to an increase in the number of users. The CCI has looked at network effects in the past to understand whether or not a competitor holds a dominant position, and subsequently, to determine whether this position has been abused. This concept is amplified in the relevant market of over-the-top (OTT) messaging apps, benefitting WhatsApp the most with 70 million users in the country, or a market share of 95%. Such a large user base allows WhatsApp to function mostly independently of market forces, due to the lack of feasible substitutes and the hesitation of users to switch. As the updated terms of use and privacy policy of WhatsApp does not allow for the user to opt-out, any individual who disagrees is left with the sole option of uninstalling the app. However, due to the nature of OTT messaging apps, it is not sufficient for users to simply delete WhatsApp and switch to other competing apps. It is also necessary to ensure that other users make the switch as well, to make the alternative a viable substitute. This creates a barrier to the efficient substitutability of the application, preventing the users from refusing to conform to the updated conditions and the alleged breach of their privacy. Such a barrier to entry is anti-competitive practice and is said to have an appreciable adverse effect on competition under Section 19(3) of the Competition Act. The EU has dealt with network effects as a reason for dominance on various occasions. In the Booking.com case, it was remarked that network effects may cause markets to tip towards a particular competitor. It was further stated that once a particular threshold is crossed, these network effects might lead to a major barrier to entry for competitors. This ties into the aspect of “tipping”, whereby the market tips in favour of a leading firm due to an increased market share. On reaching such a tipping point, firms can rely on their large user base to consolidate even more users. Large players are protected from competition and market forces due to their dominance and subsequent barriers to entry, allowing them to make decisions and impose policies that would otherwise cause a loss in business if the market was competitive.[i] The EU also extensively discusses the concept of tipping. It states that cases dealing with anti-competitive practices must be brought to the commission’s notice before companies can abuse such a dominant position. Consumer Inertia Consumers tend to opt for the default option or the option that is readily available. This aspect is abused by dominant firms by virtue of the ‘inertia’ of consumers.[ii]  Having used a platform for a considerable amount of time, consumers lack any incentive to switch to another option. Moreover, the habit formation of using a particular app over a period of time puts the average consumer in a state of inertia. Google reportedly pays USD 1 billion to Apple to be the default search engine on the iPhone. This illustrates the importance of default options and the inertia generated for them to the firms. Consumer inertia is also known as the status quo bias. The concept was extensively discussed in the EU in the Google Android Case, and has also been held by the CCI to be sufficient grounds to raise a prima facie case of abuse of dominance. It entails that those individuals who already have access to a particular platform or application on their mobile devices would have no incentive to switch to competing apps on the market. This concept is witnessed to an even greater extent in the WhatsApp case, as not only do the users already have the application on their smartphones; they also utilize it on a daily basis. It would be highly inconvenient for consumers to switch to another app if they disagree with the updated privacy policy and would be much more likely to accept the conditions despite having their differences. This is coupled with the network effects discussed earlier, as the status quo bias would only amplify when multiple users have to switch in order for any