Competition Law

[By Sharia Shoaib] The author is a student at the National Law University, Jodhpur. The Competition Commission of India (CCI) has recently probed into alleged abuse of the dominant position by Google for discriminately enforcing their payment systems on app developers. Google’s Play Store billing policy makes it mandatory for app developers to pay a hefty commission fee of up to 30 percent from the in-app earnings on the sale of digital goods and services. Additionally, the inability of app developers to use any third-party payment systems for marketing their digital content seems like a restrictive and unfair condition violating Section 4(2)(a)(i) of the Competition Act 2022. Around the same time, the European Commission (EC) had also begun its initial investigation into competition concerns related to iOS App Store’s conduct in the market for music streaming services, upon a complaint filed by Spotify. Similarly, the Spotify v. Apple music debacle also involves Spotify paying a 30% Commission to Apple on digital purchases made through Apple’s in-app purchase system (IAP) which raises Spotify’s costs and that of Spotify users indirectly. It is often argued that this exclusionary behavior by the twin mobile giants is capable of foreclosing effective competition, and profitable access to a market, resulting in high barriers to entry and other anticompetitive effects[i]. Are Google and Apple dominant entities? The two-sided transaction intermediary role an app store plays is essential to understand the competitive constraints for third-party app developers and app users in the relevant markets. Google Play and Apple App Store serve as sole gatekeepers for access to app-based services on mobile phones running their smartphone operating systems, Android OS and iOS respectively, by prohibiting sideloading of third-party applications. As a result, it forms a “closed ecosystem” that locks in developers as well as app users once they buy an Android or Apple device. Apple app store enjoys a prominent presence in the European Union (EU) market by virtue of ‘network effects’ and a high consumer base in the smartphone market. Moreover, the Court of Justice of the European Union (CJEU) has, in various instances, like in  NV Nederlandsche Banden Industrie Michelin v Commission and Eurofix-Bauco v Hilti used conduct that acts as a barrier of entry for new entrants or constraints to competitors’ expansion as a factor indicating dominance. This is further affirmed by EC in its preliminary view in Apple v. Spotify, wherein it concluded that Apple has distorted competition by “abusing its dominant position in the market for music streaming apps through its App Store platform.” Likewise, the judgment in Umar Javeed v. Google LLC assumes significance while determining Google’s dominant position in the relevant market using factors mentioned under Section19(4) of the Act. By exercising the powers vested in it under Section 26 of the Act, the CCI found it to be dominant in the “smartphone OS market”. What is the abusive conduct? As the primary channel for app discovery and distribution, dominant app stores have a special responsibility to maintain a healthy app ecosystem and not impair undistorted competition by engaging in conduct falling outside the competition on merits. In Fast Track Call Cab Pvt Ltd v. ANI Technologies Pvt Ltd, the CCI extended the ambit of special responsibility to include online platforms and digital markets. As a result, an important platform functionality of such app stores is to ensure equality of opportunity and a level playing field to compete for various economic operators i.e. app developers. Google and Apple’s conduct to make their own IAP a mandatory payment gateway can qualify as a “tie-in arrangement,” according to competition laws around the globe. In India, Google’s conduct would prima facie be considered violative of Sections 4(2)(d) and 4(2)(e) of the Act whereas in the European jurisdiction, abusive tying would amount to a violation of Article 102(d) of Treaty of Functioning of European Union (TFEU). Legal position of abuse of tying in India and EU In the Indian case of Sonam Sharma v. Apple, the CCI laid down the conditions that amounted to anti-competitive tying: The presence of two separate products or services capable of being tied; The seller must have sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product; and The tying arrangement must affect a “not insubstantial” amount of commerce. While the Microsoft case (2004), establishes that for tying to infringe Article 102 TFEU, there must be two separate products; dominance in the tying market; coercion of customers who have no option to obtain the tying product alone; and foreclosure of competition as a result. Upon a bare perusal of the aforementioned conditions, it can be ascertained that the elements of tying are similar in both jurisdictions. Now, the distinctness of products is established if there exists independent consumer demand for tying and tied products[ii]. By charging up to 30% commission through their own payment service, Apple and Google in an attempt to leverage their market power have unlawfully tied their payment processing service to the app distribution market, both offering different functionalities, hence, separate products. For instance, Google Pay has an independent demand in the payment services market and the existence of independent companies specializing in payment services, such as Paytm, is ‘serious evidence’ of the distinction of products. Apple and Google, disregarding the special responsibility owed to them due to their dominance in app store market, prohibit app developers from offering information about alternative payment mechanisms, which are usually cheaper, amounting to coercion and deprivation of choice. To affirm the view, an anti-circumvention rule this rigid making it difficult to profitably market services was found to be anticompetitive by the European Commission in Apple v. Epic games. The conduct of such app stores not mandating the use of their IAP for some of their own apps is discriminatory and gives a competitive edge to their own activities. In other words, app store’s fees hurt competition by raising costs for app developers and indirectly for app users, affecting a

[By Mansi Subramaniam & Sanigdh Budhia]  The authors are students at the Gujarat National Law University.  Introduction The Indian Pharmaceutical Industry has been transformed greatly in the past few years with the incoming of various companies and brands. It is one of the largest markets in the world, both in terms of volume and value. One of the unique features of the Indian Pharmaceutical Industry is the existence of ‘Branded Generics’. Generics are low-cost, functionally undifferentiated products with identical active components to the patented drugs whereas ‘Branded Generics’ are generic medications sold under a brand name. Branded Generics enjoy an edge over Unbranded Generics even though the chemical composition of both of them are the same because of their brand value, as well as certain anti-competitive practices. This creates a unique problem for the Indian Regulatory Authority for fair competition in the market, i.e., the Competition Commission of India (“CCI”). The latest study of the CCI on the Indian Pharmaceutical Industry highlights the existence of this problem in India and gives recommendations for the same. This article analyses the said problem and gives recommendations to ensure fair competition in the market in the presence of Branded Generics. Branded Generics Market Quandary India is the biggest supplier of generics globally. India’s pharmaceutical business is dominated by generics, which account for 97 per cent of the country’s drug consumption in terms of value. Around 10 per cent of these medications are unbranded generics. Branded Generics account for the rest of 87 per cent of all the drugs prescribed. Even though unbranded generics and branded generics are homogenous in nature, there is a significant price differentiation between the two. The price difference between them ranges from 1 to 200 per cent, making Branded Generics very expensive for the population at large. The companies selling Branded Generics increase their market share by selling in large volumes and by adopting certain uncompetitive practices. Since these branded generics are priced higher, they earn a huge profit, resulting in them becoming a market leader in the pharmaceutical sector. These market leaders often determine the prices in the market. Causes of high-priced Generic Drugs The prevalence of branded generics is one of the main causes of highly-priced generic drugs. Branded generic drugs are priced higher owing to the high trade margins maintained by the drug manufacturers. Higher trade margins are offered to traders by these companies to prioritize or only stock their drugs in trade and retail stores over other manufacturers. The general public perception that branded generic drugs are of higher quality in comparison to unbranded generics, is a major reason why the former is preferred, despite the latter being a cheaper option. The CCI study reveals that the market is usually dominated by the highest-priced brand. However, these findings are contradictory to an ideal competitive market. Ironically, studies have even shown that there exists no difference in quality and efficacy between branded and unbranded generics drugs. The demand for branded generics is further spurred by arrangements between drug companies and hospitals/medical practitioners. Patients are prescribed specific branded drugs, despite the availability of lower-cost options. Private hospitals often have a compulsory tying of consumables (patients are mandated to purchase drugs from the hospital itself), thus leading them to purchase specific brands irrespective of the cost. This issue is further exacerbated by information asymmetry in the market and the fact that consumers are generally unaware of lower-priced options. Proposed Recommendations The CCI in its study has recommended that in order to assuage the concerns about the quality of drugs in the minds of people, the quality of drugs should be maintained at a pre-determined standard. It has recommended the implementation of existing quality standards and periodic and scientific testing of drugs. When all the drugs are obligated to satisfy the same specifications and regulations, it is entirely incorrect to presume that a more expensive brand is of higher quality than a less expensive brand or unbranded generics. Even branded generics can fail the quality test if companies do not comply with existing standards. Thus, Branded Generics cannot justify their higher prices based on quality perceptions. Reducing Doctor- Pharmaceutical company nexus In order to ensure fair competition among all types of generics in the market, the doctor-pharma company nexus should be restrained. The government should mandate the Uniform Code for Pharmaceutical Marketing Practices (UCPMP) and actively implement it. The UCPMP is India’s version of the US’ Physicians Payment of Sunshine Act (Sunshine Act). Sunshine Act has resulted in fines of millions of dollars for some pharmaceutical corporations. However, in India, the implementation of UCPMP remains voluntary till date. The UCPMP restricts pharmaceutical companies from giving any kind of financial or pecuniary benefits to doctors and their family members, wholesalers, retailers, etc. The pharmaceutical companies often employ such incentivization tactics to persuade doctors to prescribe their high-priced brands over others (and in some cases, doctors have asked for incentives in exchange for prescriptions). Implementing UCPMP mandatorily will curb such practices. The Essential Commodities (Control of Unethical Practices in the Marketing of Drugs) Order, 2017 (“CUPMD Order”) was released by the government in 2018 and was proposed to be passed as a law under the Essential Commodities Act, 1955. The order noted that doctors are often lured to recommend a particular drug in exchange for incentives. This order outlawed such transactions and proposed the creation of a new authority known as the Ethics Compliance Officer, who would be in charge of investigating any alleged violation of the CUPMD Order. This order needs to be converted into a law and implemented effectively. In 2017, the government proposed to bring in a law ensuring that doctors prescribegeneric drugs only. The Medical Council of India has already recommended the same. However, this law was never enacted. The government should actively take steps to enact and implement the said law in order to ensure that doctors do not favour one company over another. Price Control Mechanism for Generic Medicines The Government needs to revisit

[By Alay Ninad Raje]  The author is a student at the Institute of Law, Nirma University.  Introduction The heat of Dawn Raid was recently faced by Beer Companies who were held responsible for violating the provisions of the Competition Act, 2002 (“the Act”) by forming and operating an all-India cartel, by the Competition Commission of India (“CCI”) vide an order dated 24.09.2021.This order relied upon pieces of evidence uncovered by the Director General (“DG”), through a Dawn Raid (“DR”) conducted on 10.08.2018 at the offices. A DR can be described as an unexpected search and seizure operation conducted by the investigation arm of antitrust watchdogs, on the premises of accused enterprises for collecting evidence in an antitrust probe. This brings the concept of DRs back to light, and here the author seeks to analyse the concerns arising from DRs, and the party’s/enterprise’s right to counsel during the DRs. Understanding DG’s powers vis-à-vis Dawn Raids The DG is empowered through Section 41(3) of the Act, r/w Section 220 of the Companies Act, 2013 (“CA”)for conducting a DR and; (i) search through documents and digital data;(ii) use reasonable force to access office premises, domestic premises, and different modes of transportation for the firm’s personnel; (ii) seize required materials; (iii) seal any business premises, books or records for the period; (iv) keep in its custody such documents and digital data so seized until the conclusion of the investigation, if necessary; and (v) depose concerned personnel under oath. The DG can exercise these powers after obtaining a search warrant from Chief Metropolitan Magistrate, New Delhi, if there exist ‘reasons to believe’ that evidence pertaining to the violation of the Act are likely to be destroyed, mutilated, falsified or hidden. For instance, one of the alleged entities of a cartel, files a leniency application before the CCI. This leniency application provides information regarding the existence of evidence indicating cartelization, and that the other alleged entity(s) are inclined at disposing or burning down these evidences. In such a case, the CCI can ask the DG to conduct a DR. Here, the phrase ‘reasons to believe’ has not been categorically defined, and the width of its scope has not been measured. However, it can be understood as a certainty based on prima-facie evidence arrived at through non-arbitrary measures and application of mind. Hence, given the ambiguity and wideness of scope, the DG has the ability to misuse its above-given powers. Can Dawn Raids be Misused? The intrusive and invasive nature of DG’s power with regards to DRs, makes it necessary for analysing circumstances wherein the DG could misuse the power to unduly harm the interests of enterprises. Seizure of materials ultra-vires the scope of the DR search warrant: For instance, a Firm manufactures two different types of food products, which are not considered easily substitutable by consumers, but the CCI wrongly delineates the relevant market such that both the products are considered as a part of one market. Therefore, since the delineated market is now of a broad nature, the DG during the DR will not only collect evidence and material regarding Product-1 but also of Product-2 which could be utterly unnecessary and amount to undue seizure, and breach of business privacy. Or the Firm manufactures two distinct types of stainless-steel products, Grade-1 and Grade-2, the investigation pertains to one of them, but the DG during the DR collects material pertaining to both of them. A similar situation was observed in the European Union (“EU”), wherein the General Court recognized this concern as substantial. In that case, instead of delineating the market of ‘high-voltage underwater electric cables’, it delineated the market of electric cables and hence during the DR, collected materials pertaining to all electric cables. Use of collected evidence in different investigations: The evidence collected during a DR for one investigation, could be misused in another investigation which relates to the same enterprise but different anti-competitive activity. For example, in an investigation over a Motor-Vehicle Manufacturing Company, allegations have been raised over its anti-competitive practise in the market of ‘sale of spare-parts’, subsequently, in a different case the same Company is alleged to participate in a cartel in the market of ‘sale of car’s ball bearing and axle’. Now, while conducting a DR concerning investigation in the latter case, the DG gathers and makes copies of evidence pertaining to the Company’s anti-competitive conduct in the market of ‘sale of spare-parts’. Even though these are two separate investigations, the DG leveraged its position in the DR and conducted search and seizure of materials for the former. This issue was raised during a case in the EU, where while conducting a Dawn Raid for the investigation of ‘discriminatory rebate scheme’, the officials collected materials concerning the same Company’s anti-competitive practises in the market of ‘rail transport’. Conflict regarding legally privileged documents: Any confidential communication between an enterprise and its legal counsel is protected, and not subject to disclosure. However, in absence of any rules/ guidelines for deciding what documents and data would be considered as legally privileged, during the DR deciding the same rests upon the discretion of the DG. This could be troublesome because the raided firm would not be able to stop the DG from incorrectly deciding upon this matter and seize even legally privileged documents. Absence of Right against self-incrimination: Article 20(3) of the Constitution of India (“CoI”) protects against self-incriminating testimonial compulsion. But while the European jurisprudence offers a right against self-incriminating testimonies during the DR, the same is not provided in India. This is because, Article 20(3) of CoI only applies to criminal prosecutions, whereas the proceedings under Section 41(3) of the Act are civil in nature. Thus, during the DR, the officials can depose the employee(s) of the firm under oath, and ask questions regarding the seized materials, that might incriminate either the firm or the employee(s) itself. The author is of opinion that these issues raise a concerning eye over the powers of DG during a DR. Further, it is

[By Vridhi Kashyap & Tanisha Mishra] The authors are students at the National Law University and Judicial Academy, Assam.  Introduction Selective Distribution Agreement (SDA) is one of the facets of vertical agreements. It allows the company to select retailers based on some pre-determined criteria, upon the fulfilment of which the outlet becomes the authorised distributor of the company. This arrangement allows the company to maintain sanctity in its distribution channel, as non-authorised dealers are not allowed to deal with the company’s product. It is an attractive mode of distribution because it allows the company to protect its brand image and intellectual property by selecting only a few authorised outlets. The outlets represent the company and are unique in appearance and mode of conducting business. SDA also prevents free riding and favours retailers by creating incentives for them. SDA, which is based on exclusivity, may seem anti-competitive, however, it is legal under EU regulations. The famous Metro v. Commission decision established three requirements that must be met before a company can legally have an SDA. The conditions are threefold: first, the firm must deal with a product that necessitates a special distribution agreement; second, the qualitative criteria must apply to all potential retailers without any discrimination; and third, any restriction imposed in view of having a restricted circle must not go further than it is objectively necessary.  The firms that usually fulfil these criteria are the tech know-how companies that require skilled personnel in the outlets, branded companies, especially those dealing with luxury products or cosmetics, and newspapers, which have a short life span and need careful distribution. In the Indian context, Competition Act, 2002 (Act) doesn’t take note of SDA, however, under 3(4)(b) and 3(4)(c) of the Act, exclusive distribution and supply agreements can be anti-competitive if they cause Adverse Appreciable Effect on Competition (AAEC). While the Act is absolutely right in incorporating that, recently there have been many companies, which fall under the category luxury and tech know-how businesses who feel the need to indulge in SDA, and the Act fails to address these concerns. This article argues that laws on SDA must be formulated in India because of the lack of uniformity and stability in the precedents. Tracing the Precedents: An Analysis The deliberation on SDA was initiated and highlighted in Ashish Ahuja v. Snapdeal and Anr.  (Snapdeal case)  which emerged in 2014, where Ashish Ahuja, the informant, moved the court under Section 19(1)(a), and alleged that Snapdeal and SanDisk Corporation had colluded to restrain the informant from selling SanDisk products on the e-commerce platform of Snapdeal. SanDisk further required the informant to be its authorised dealer and to procure materials from its authorised distributors in India, to be able to deal with its products. The Competition Commission of India (CCI) held that SanDisk wasn’t abusing its position in the market by having authorised distributors, as it could do so in order to protect the sanctity of its distribution channel. By this judgement, the CCI upheld SDA and the liberty of a company to select whom it deals with. However, in Shamsher Kataria v. Honda Siels Cars India Ltd. and Ors., (Kataria judgment) CCI held that the spare-parts market was a relevant market, and it observed that companies like Honda Siel cars, Volksvagen and twelve other car manufacturers, supplied spare parts to their authorised dealers only, while restricting and hindering the businesses of non-authorised repairers in the open market. It was found that the Original Equipment Manufacturers (OEMs) had charged exorbitant prices for spare parts and also restricted the access to such spare parts, resulting in denial of market access to the independent repairers. Therefore, CCI held the manufacturers were liable under Section 3 and 4 of the Act and imposed fines accordingly. While the conclusion is laudable and precise, CCI failed to discuss the SDA provisions which it upheld in the Snapdeal case. In a similar case in the EU, the Friedrich Grohe Armaturenfabrik GmbH & Co. (Grohe), a manufacturer of plumbing fixtures, formulated rules for its authorised dealers regarding their dos and don’ts. One of the criteria was to restrict its authorised distributors from the resale of the products in the open market, in defence of which they argued that their products were semi-finished and needed technical and professional assistance in installation, which the authorised dealers were capable of. The commission examined the case along the lines of SDA and nonetheless held such practices to be anti-competitive. Therefore, adopting SDA doesn’t mean the company can indulge in anti-competitive arrangements and such a narrative in the Indian context through the Kataria judgment would have further strengthened the position and relevance of SDA in the Indian laws. In the case of Tamil Nadu Consumer Products Distribution Association v. Vivo Communications Technology Company and Ors., the informant, which was an association to protect distributors from exploitation, alleged that Vivo had imposed unfair conditions on its distributors, in contravention of Section 3 and 4 of the Act. One of the conditions was that the distributors weren’t allowed to select their retailers, and it was under the company’s control to choose its retailers. The CCI rejected the complaint, claiming that the informant had not provided any concrete evidence to support this argument. However, the CCI should have had upheld that Vivo had the right to select its distributors and its retailers, as the commission had concluded in the Snapdeal case. By doing that, another precedent could have been added in favour of SDA. Position of Online Sales The manufacturer who is legally allowed to adopt SDA can impose some anti-competitive restrictions as per the EU’s guidelines on vertical agreements. One of the highly debated restrictions is the usage of online platforms.Usually, manufacturers restrict their dealers from selling accessories online, claiming the lack of control they have over online sales and delivery. Moreover, they believe that online sales do not meet the standards provided by them, through their brick and mortars, which thus impacts the brand image. Imposing such a restriction