Author name: CBCL

[By Ritvik Maheshwari and Vatsla Shrivastava] The authors are students at National Law University Odisha, Cuttack, and National Law Institute University, Bhopal, respectively. Introduction The advent of the Internet has proven to be a groundbreaker in the introduction of new ways of commerce and business. With the incessant inclination towards e-commerce, online platforms for search and comparison of products and services have become commonplace. Consequently, a special type of agreement called Across Platform Parity Agreements (hereinafter APPA), which ensures price parity across all platforms, has become extensively employed. These agreements raise some competition concerns, one of them being perpetuating the formation of a price-fixing cartel. This article explores how APPAs can be used as a means to form a price-fixing hub-and-spoke cartels. Across Platform Parity Agreements and their Significance APPAs are used to avoid a type of market failure called free-riding or free-riders effect. A buyer uses an online platform to locate a seller, but may finally conclude the transaction on an alternative venue. When this happens, the online platform does not get any commission for such transactions, which results in free-riding by the buyer. This is more likely to occur when some other platform offers the same product/service at a lower price. These online platforms have to make investments in quality, such as improving algorithms and rankings, along with other investments such as advertising to attract the parties to the platform. If an online platform does not get a commission for transactions, it would not be able to cover these costs. Thus free-riding would break down the business model. To overcome this problem of free-riding, online platform uses APPAs. These are contractual provisions that bar the seller from charging different prices for the same product/service on other platforms. An APPA is ‘narrow’ if it prevents the seller from offering a different price on other platforms; on the other hand, it will be ‘wide’ if the agreement bars the seller from offering different prices even at its own website. If the price across all channels is the same, a buyer is more likely to conclude the transaction on the platform on which it located the seller. This ensures commission for the online platform. While APPAs do seem to be necessary to run online platforms, they are likely to hinder competition in the market by being used as a means to form a price-fixing cartel. Section 2(c) of the Competition Act, 2002(hereinafter Act) states – “cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services”. This indicates that a cartel is an arrangement among economic actors at the same level of the supply chain rather than those on different levels. Section 3(3) of the Act covers cartel-like agreements and practices such as price-fixing, market control, market allocation, and bid-rigging. Section 3(3) covers only agreements and practices between the ones engaged in similar or identical trade. Hence, in the defense of narrow APPAs, it can be argued that they are not cartel agreements since they are vertical agreements entered between platform owners and sellers. However, the concern arises when APPAs lead to the formation of a special type of cartel, i.e. hub-and-spoke cartel, whose formation and operation is different from a traditional cartel. Formation and operation of Hub-and-Spoke Cartel This is a unique arrangement of economic actors that do not co-ordinate through direct links among the horizontal competitors, but coordinate through deviant exchanges via a vertically related supplier or retailer. It becomes strenuous for enforcement agencies to recognize when intrinsically legitimate transactions between suppliers and retailers transform into a prohibited arrangement, without any explicit evidence of collusion. For instance, in the case of Argos Ltd & Anor v Office of Fair Trading, Hasbro was the leading toy manufacturer in the UK while Argos and Littlewoods were the top retailers, competing with each other. Argos and Littlewood were giving low margins on some products. In order to tackle this, Hasbro came up with a “pricing initiative”. According to this, retailers were supposed to charge a Recommended Retail Price (RRP) to increase the margins. Both of them were suspicious that the other one would undercut the RRP to acquire market shares. Here, Hasbro acted like a hub indulging in anti-competitive practice by holding discrete discussions with Argos and Littlewoods and communicating the pricing strategy with both of them. Moreover, Hasbro was continuously monitoring the retailer’s conduct directly or through the information accepted by the retailers. Henceforth, Hasbro acted as a hub, while Argos and Littlewoods were the spokes connected to this hub. These kinds of cartels are called Hub and Spoke Cartels and as we shall see in the following section, APPAs can induce the formation of such cartels. Misuse of APPAs to form Price-Fixing Cartel The formation of a price-fixing hub-and-spoke cartel via price parity agreement has been previously witnessed in the case of United States v. Apple, Inc. Apple was eager to enter the e-book market by launching its iPad and the iBookstore. Amazon was prevalent in the market with the Kindle reader and its online bookstore. Most of the publishers sold their books through Amazon and Amazon used to buy those books at the wholesale price from publishers. This allowed Amazon to set the price of the books considerably low. To tackle Amazon’s primacy in the e-books market, Apple came up with an alternative for the publishers and offered the publishers an “agency model” wherein publishers would set the prices themselves for the books to be sold via the iBookstore. In this arrangement, Apple would receive a commission of 30% for each e-book sold. However, this arrangement was not enough to compete with Amazon. Consequently, Apple incorporated a parity clause in publishers’ contracts, according to which publishers were restrained from selling e-books on any other platform lower than the prices at iBookstore. It appeared that the only way for the publishers to get out of this situation was

[By Srishti Suresh] The author is a student at NALSAR University of Law, Hyderabad. Introduction In the context of digital platforms, the intricate and unique structure of two-sided models have confounded antitrust regulators’, in delineating the right approach of scrutiny to be adopted. Motivated to strike an optimum balance between excessive regulation and undervaluation of market effects, antitrust authorities have been rather skeptical in analyzing the complexity posed by such markets. In the Indian context, the Competition Commission of India (“CCI”) has often faltered in its approach in defining the “relevant” market. The right market definition assumes importance, as the legal bounds of a relevant market has a de facto fundamental consequence on the legal framework adopted by an antitrust regulator, in weighing the anti-competitive and pro-competitive effects. Understanding Two-Sided Market Platforms Two-sided markets are platforms, that serve two distinct groups of “customers” with interrelated cross demands. The interdependency between the two sides of the platform significantly reduces transaction costs that otherwise ensue, along with coordination costs.[i] Therefore, in a two-sided market platform, economic value and wealth creation cannot be created alone; economic value grows with the number of connections and options available across the two sides of the platform.[ii] Unless the two sides are ‘on board’, the platform entity cannot effectively thrive in a competitive market. For instance, Facebook connects retailers and advertisers with users, while payment apps such as Apple Pay and PayPal connect customers with merchants. These markets create value through such an interface. While this model appears seemingly innocuous, its complexity can be attributed to its indirect network effects. Indirect network effects are said to occur when the value created by one side of the platform, affects the value created on the other side of the market. The platform basically functions as a lucrative opportunity pool, catering to the needs of both groups of customers. In the case of digital platforms, with the help of advanced algorithms and filtering, companies are better equipped in ascertaining the immediate requirements of their customers. However, this advantageous network benefit also gives way to glaring asymmetric price structures.[iii] A two-sided market model differs from a traditional single-side one-group customer in this pricing aspect. A profit-maximizing two-sided model can choose to charge below marginal costs, or even a negative price for one side, while increasing the costs to the other side. Different groups can be charged different prices. Online networking platforms, search engines, dating websites, etc., offer free services to registered users, while charging higher fees to advertisers, merchants, and retailers. What attracts the supply side customers (despite higher costs) is the potential outreach to a large customer base. Defining the Relevant ‘Right’ Market Having mentioned the existence of two different sides to a platform, it is pertinent for regulators to recognize the same, while assessing the market power of the platform entity. In most cases investigating market dominance, merger inquiries, or assessment of entrenched market power, delineating the distinct markets actually involved is of fundamental importance. Market share is conventionally used as a proxy for market power.[iv] This holds true for single platforms. But this theory runs into difficulties when assessing two-sided platforms, where the pricing power and tactic used on each side depends on the degree of competition on both the sides. A true and informed market power determination relies on such a holistic assessment. However, authorities have adopted different approaches in understanding this market implication. India In Ashish Ahuja v. Snapdeal (2014), the CCI with reference to the retail market held, that “online and offline modes are just two different channels for the same product”. In All India Vendors’ Association v. Flipkart (2018), the Commission rejected the counsel’s request of defining two markets (B2C and B2B) and defined the market as “Services provided by online marketplace platforms for selling goods in India”. The two orders focus on the “product” approach. Regardless of the interdependence between different groups, as long as the two sides are transacting on the same product or service, it is deemed to be a “single” market. However, in Shri Vinod Kumar Gupta v. WhatsApp Inc., the CCI has drawn a distinction between online and offline modes of services offered by digital platforms. In light of their negative switching costs, multi-homing facilities, and lack of geographical barriers, the relevant market was defined as the “market for instant messaging services using consumer communication apps through smartphones”. As one can observe, there is a glaring inconsistency with the CCI’s approach in defining the relevant markets of two-sided platforms. The balancing of interests when a disparity of interests between the two sides arise, the CCI has offered no coherent reasoning in reaching its decisions. Moreover, under the Competition Act, 2002, Section 2(r) defines a relevant market as one that pertains either to the particular ‘product’ sold by an entity, or the specific geographical market in which an entity carries out its trade. Further, in defining the relevant market, the availability of substitutes and similar competitors plays a key role in influencing the regulator’s evaluation. However, this attenuated perspective of product and geographic definition remains oblivious to the network effects and interdependency between geographic and product markets that generally ensue in a digital two-sided platform. In platforms such as search engines and network-based payment applications, the customer outreach and motivations for participation, are not captured in the Section provided under the Act. For instance, in the recently approved Facebook/Jio Platforms acquisition, the interface between the telecommunication and social networking giant cannot be confined to a narrow product definition. The potential outreach and impact on different sectors and user groups, warrants a more thorough and delineated understanding of impacted markets. Only when these factors are considered, can the Commission define the “relevant” market and proceed to a market power assessment in the future. European Union The EC has recognized, that where more than one side exists to a market with interdependency and cross demands, certain additional questions arise. Most importantly, should the welfare of one side of users be aggregated

[By Sajith Anjickal] The author is a student at the National Law School of India University, Bangalore. Introduction Section 53A of the Competition Act, 2002 (‘Act’) deals with the scope of the Appellate Tribunal’s power to hear appeals against directions issued, decisions made, or orders passed by the Competition Commission of India (‘CCI’). In terms of the powers of the CCI under Section 26, Section 53A(1)(a) allows appeals only under two circumstances: (i) Section 26(2) – when the CCI is of the opinion that no prima facie case exists and passes an order to close the matter; and (ii) Section 26(6) – when the Director-General (‘DG’) finds no contravention and the CCI, agreeing with the DG, passes an order to close the matter. Orders passed under other subsections of Section 26 are not appealable. Thus, no appeal shall lie in circumstances wherein: (i) the CCI, after forming an opinion that a prima facie case exists, directs an investigation under Section 26(1); (ii) the DG finds no contravention but the CCI disagrees with the DG and directs further investigation/inquiry under Section 26(7); and (iii) the DG finds contravention and the CCI directs further inquiry under Section 26(8). This scope of appeal under Section 53A(1)(a) was clarified by the Supreme Court in Competition Commission of India v. Steel Authority of India (‘SAIL’). However, ambiguity still exists with respect to circumstances wherein the DG finds contravention but the CCI disagrees with the DG and closes the matter. The Act does not account for orders made in this regard. Consequently, there is no clarity as to whether the CCI’s decision to close a matter, despite a finding of contravention by the DG, is appealable. Should closure orders, passed after a finding of contravention by the DG, be appealable? In the SAIL case, while justifying the scope of appeal under Section 53A(1)(a), the Supreme Court distinguished between the nature of orders passed by the CCI under sub-sections (2) or (6) of Section 26 and other sub-sections of Section 26. The Court held that, unlike the orders under other sub-sections, orders under sub-section (2) or (6) of Section 26 are final as they put an end to the proceedings initiated upon receiving the information. Such closure of proceedings, in the opinion of the Court, causes determination of rights and affects a party (the informant), and thus the said party must have a right to appeal against the closure of the case. This observation of the Supreme Court lends support to the view that the CCI’s decision to close matters, despite a finding of contravention by the DG, must be appealable. Such decisions, by putting an end to proceedings, determine rights and affect the informant(s) and thus there is no reason as to why they should not be appealable. Nevertheless, given that the right to appeal is a statutory right, the problem of maintainability arises as there is no statutory backing for appealing these decisions. Approach of the Appellate Tribunal The manner in which the Appellate Tribunal has dealt with the problem of maintainability has been confusing. On one hand, in some cases, the Appellate Tribunal has gone on to admit appeals by either ignoring or evading the problem altogether. For instance, in In Re: Deputy Chief Materials Manager, Rail Coach Factory, Kapurthala and M/s Faiveley Transport India Ltd and Anr, the DG submitted a report finding contravention. The CCI, however, passed an order closing the case on the ground that the DG’s findings were inadequate to confirm the contravention. The informant appealed to the Appellate Tribunal, which admitted the appeal without going into the question of maintainability.[i] Given that the CCI, in closing the matter, disagreed with the DG’s finding of contravention, it is apparent that the closure order does not fall within sub-sections (2) or (6) of Section 26. Thus, the Appellate Tribunal’s decision to admit the appeal, without providing any justification for the same, is problematic. Another instance is the Appellate Tribunal’s treatment of the appeal against the order in In Re: Sunil Bansal & Ors and M/s Jaiprakash Associates Ltd & Ors. In this case, the DG filed a report finding no contravention but the CCI disagreed and directed further investigation under Section 26(7). Pursuant to this direction, the DG filed a supplementary report finding contravention. The CCI, however, closed the case by discarding the findings recorded by the DG in the supplementary report and accepting the conclusions recorded in the initial report. The informant appealed against this decision of the CCI. The Appellate Tribunal admitted the appeal by noting that as the CCI accepted the DG’s initial finding of no contravention, its closure order fell within the ambit of Section 26(6).[ii] In doing so, however, the Appellate Tribunal conveniently ignored the fact that, in closing the matter, the CCI effectively disagreed with the DG’s finding of contravention in the supplementary report. On considering the CCI’s disagreement with the finding of contravention in the DG’s supplementary report, it becomes clear that the CCI’s closure order cannot be categorised as one falling within Section 26(6). On the other hand, in a few cases, the Appellate Tribunal has acknowledged the limitations in its appellate jurisdiction and dismissed appeals. For instance, in In Re: Saurabh Tripathy and Great Eastern Energy Corporation Ltd, the DG filed a report finding contravention but the CCI disagreed and passed an order to close the case. The informant appealed to the Appellate Tribunal. The Appellate Tribunal, however, dismissed the appeal noting that the present scheme of the Act did not empower it to admit appeals against such orders. [iii] Need for Legislative Action It is evident that legislative action is required to settle the problem of maintainability of appeals against closure orders passed subsequent to a finding of contravention by DG. Unfortunately, the recently proposed Draft Competition (Amendment) Bill, 2020 (‘Bill’) falls short of completely resolving the problem. The Bill seeks to incorporate Section 26(9) by virtue of which the CCI, upon completion of the investigation or inquiry under Sections 26(7)

[By Bhabya Mahapatra] The author is a student at Hidayatullah National Law University, Raipur. Introduction Section 53A of the Competition Act, 2002 (“the Act”) provides for an appellate body, i.e. the National Company Law Appellate Tribunal (“NCLAT”), to hear matters against the orders of the Competition Commission of India (“CCI”). On the other hand, article 226 of the Constitution of India empowers the High Courts to entertain writ petitions as original or appellate bodies. Notably, the Act nowhere bars this power of the High Court. In fact, the Supreme Court in its latest judgement[i] has held that the power of the High Court under article 226 cannot be taken away or abridged by any contrary provision in a statute. However, the NCLAT on 20th May, 2020 in the case of Maj. Pankaj Rai v. Secretary, CCI[ii] has held that a litigant cannot approach any High Court to appeal against the orders of CCI when the Act specifically provides for a forum for that purpose. Although, the judgement has also shed light on the standard of review in condonation of delay in filing an appeal in competition matters, a subject that has been touched upon less as opposed to the standard of condonation of delay falling under the purview of the Limitation Act, 1963. This article will try to discuss on what grounds the NCLAT might have erred, in deciding the above-mentioned case. Background of the case The Informants had raised concerns under ss. 3 & 4 of the Act before the CCI against NIIT Limited, New Delhi, offering computer education/ training services. The Informants being the franchisees of the Opposite Party, i.e. NIIT (“OP”), alleged that the OP was abusing its dominant position through its franchise agreements and indulging in anti-competitive practices. The CCI therein, after taking all factors into consideration, reached the conclusion that the OP faced competition from similarly placed players in the market, and thereby it couldn’t be categorically concluded that the OP held a dominant position in the relevant market. Such observations were enough to rule in favour of the OP. Interestingly, the appellant Mr. Pankaj Rai opted to appeal against this order of the CCI through a writ petition before the High Court of Telangana, contesting that the order was obtained by fraud. Notably, this point was contested by the appellant on the ground that it was because of the intervention of the advocate for the Respondent, i.e. Mr. Vinod Dhall, who previously served as the Chairperson of the CCI, that an order in favour of the Respondent could be obtained, hence claiming that the order was fraudulently obtained. Noteworthy herein is that the High Court rejected the writ petition of the appellant holding that Mr. Rai should have approached the NCLAT instead of the High Court, on the basis that the Act provides for the remedy of appeal under s. 53A before the NCLAT. After a failed appeal before a Division Bench of the Telangana High Court, and retracting a review petition before the Supreme Court, the appellant after a period of 768 days (emphasis added) filed an appeal against the impugned order of CCI before the NCLAT. Judgement NCLAT referred to the case of Swiss Ribbons Pvt. Ltd. v. Union of India[iii] to shed light on the ratio that whenever a statutory remedy is available, the aggrieved party cannot be allowed to invoke the writ jurisdiction of the High Court instead. Hence, in the view of NCLAT, the litigant should have approached NCLAT, as has been provided under the Act (s. 53A). It went on to rule that a litigant aggrieved by the order of CCI cannot be allowed to choose the remedies, under the pretext of the order being against the principles of natural justice. If such a course is allowed, it would lead to forum shopping. To understand the next part of the judgement, a reading of s. 53B(2) of the Act is required. It reads: “Every appeal under sub-section (1) shall be filed within a period of sixty days… Provided that the Appellate Tribunal may entertain an appeal after the expiry of the said period of sixty days if it is satisfied that there was sufficient cause for not filing it within that period.” 5 of the Limitation Act uses similar wordings: “..Any appeal or any application … may be admitted after the prescribed period, if the appellant or the applicant satisfies the court that he had sufficient cause for not preferring the appeal or making the application within such period.” The NCLAT after considering this similarity, relied on the case of Geeta Kapoor v. Competition Commission of India[iv]  and held that if the ratio of the cases used in interpreting “sufficient cause” under s. 5 of Limitation Act, 1963 are also used to interpret “sufficient cause” under s. 53B(2) of the Act, the purpose of providing a different limitation period under the Act would be defeated, and hence by extension, the provisions of Limitation Act, 1963 stand excluded in proceedings governed by the Competition Act, 2002. Based on the abovementioned points, NCLAT held that there was no “sufficient cause”, as provided under the proviso of s. 53B(2), for it to condone the delay of filing the appeal after the expiry of 60 days. Moreover, a delay of 768 days was also held to be unreasonable. Hence, the NCLAT conclusively decided that there existed no substantial grounds to admit the appeal beyond the prescribed period of limitation. Analysis of the judgement It is noteworthy herein that the two reasons attributed to the delay in filing the appeal under the NCLAT by the appellant were: (i) The geographical vicinity of the High Court of Telangana, as opposed to Delhi, as the appellant was a resident of Hyderabad; (ii) The claim of the order of CCI being obtained fraudulently, allowing the appellant to file a writ petition under any High Court. The author firmly believes that these two grounds could have been construed by the NCLAT to establish “sufficient cause” as

[By Arjun Nayyar and Jayadeep Manchikalapudi]  The authors are students at NALSAR University of Law, Hyderabad and Hidayatullah National Law University, Raipur, respectively. Setting the Context Recently, allegations over Google’s actions have brought it under the scrutiny of the Competition Commission of India.[i] With an appeal against a previous anti-trust order still pending in the Apex court, the internet giant has been flagged this time for promoting its payment app Google Pay unfairly through the Google Play Store.[ii] This method allegedly utilises search manipulation, a practice that Google has been accused of in the past.[iii]Such manipulation of search results enables Google’s vertical payment partner to appear predominantly when searching for payment apps from the GooglePlay Store. This is a textbook case of an enterprise leveraging dominance in one relevant market to enter into or protect its product in another relevant market; a practice that is expressly proscribed under Section 4(2) of the Competition Act of 2002.[iv]However, such instances of anti-trust complaints are not limited to Google, with accusations being leveled against other internet giants as well. Apple also faced a similar issue recently, when Spotify filed an official complaint with the European Union against the discriminatory pricing policy adopted by the company’s App Store between Apple music and other music streaming services.[v] Both Apple and Google essentially have a dual role as a platform: They distribute their own apps (such as Apple Music and Youtube) on their app stores (App Store and Google Play Store respectively); and They provide a platform for apps where third-party app developers offer their products and services directly to users. Most of the complaints deal with the abuse of this dual role, whereby the powerful enterprises attempt to leverage their dominant position in an upstream market (here, the platform) via favoring their downstream division (the apps). This is done at the cost of the competitors in said downstream market, using pre-existing affluence in one market to bolster the success in another. For a complaint dealing with the abuse of dominance, the establishment of three things is necessary, which are: Proving the market is a relevant one(comprising of relevant product); The enterprise occupies a dominant position (using factors mentioned under Section19(4) of the Competition Act)[vi]; and The conduct amounts to an abuse of said dominant position. Relevant Market The test for determining the relevance of a market is elucidated in Section 2(r) of the Competition Act[vii] and is based on the products and/or services, along with the location at which these are provided. In the present complaint against Google, the appropriate relevant market would be the market for app stores for android mobile operating systems. This was established in the matter of Umar Javeed v. Google LLC,[viii] through which the Competition Commission of India listed a number of different app stores available for Google Android devices. These include the Play Store, the Amazon AppStore, Samsung’s Galaxy Apps store, Aptoide, the Opera Software ASA’s Mobile Store, and the Yandex Store. The Commission concluded that these different app stores for Google Android devices (“Google Android app stores”) belong to the same product market. Dominant Position While different app stores do exist in the market for android mobile operating systems, Google is the distinguished leader. The Dutch Authority for Consumers and Markets (ACM)conducted a market study of mobile app stores, with the twofold goal of understanding how app developers get their products in app stores, and the influence which these stores have on the selection of apps for the users.[ix]It concluded that the Apple App Store and Google Play Store have their “app-ecosystems” closed by design, leaving virtually no feasible app stores as alternatives within either of these ecosystems. This was reiterated by the EU Anti-trust regulator, stating Google clearly is a dominant player with over 90% of market share in a high entry barrier market.[x] Abusive Conduct If a firm holds a dominant position, it has a special responsibility to ensure that its conduct does not impair genuine and undistorted competition in the common market. This was established as a standard in the EU as early as 1983,[xi] and was extended by the Competition Commission of India to include online platforms and digital markets in Fast Track Call Cab Pvt Ltd v. ANI Technologies Pvt Ltd.[xii] Assuming the alleged conduct of Google to be true, a question arises as to whether the act of promoting its own app over others amounts to abuse under the Act. The answer lies in the regulatory stance adopted by the Competition Commission of India. The emphasis under section 4(1) of the Act[xiii] is on “abuse”, though the word itself has not been defined under the Act, with the legislature wisely choosing to leave it open to be interpreted on a case-to-case basis. Having said this, the Government of India in 1999 constituted a high-level committee led by Mr. SVS Raghavan to suggest changes to Competition Law framework in the country in order to bring it at par with the advanced international standard. In its report, the committee elaborated on the meaning of “abuse”, stating that “discriminatory behaviour and any other exercise of market power leading to the prevention, restriction or distortion of competition would obviously be included in the definition of abuse”.[xiv] In the present complaint, Google’s conduct of using its platform to promote its own payment app over others duly qualifies as discriminatory behaviour, thus falling under the definition of abuse under the Competition Act. The Lack of Possible Defences As per accepted EU law,[xv] there is no threshold for the purpose of determining abuse of a dominant position, as the mere misuse of the same is not justified. Moreover, the only defence available under the Competition Actis to prove the abuse by other market players, which is not the case in the present complaint. Also, the dominant enterprise in the first market need not possess a dominant market position in the second market. The Competition Act does not necessitate a high degree of associational link between the market in which a dominant