[By Ankita Raghunath]
The author is a student at the Gujarat National Law University, Gandhinagar.
Recently, an inquiry has been directed to BookMyShow under section 26(1) of the Competition Act, 2002 (referred to as “Act”) on the grounds that BookMyShow has entered into anti-competitive agreements with multiplexes and theatres under the provisions of section 3 read with section 4 of the Act which deals with abuse of dominant position.
Background of the CCI Order
According to Showtyme, the informant in the present case, theatres are unwilling to associate with other online movie ticketing portals due to monetary incentives being provided to them by BookMyShow on zero interest. This is despite the fact that Showtyme charges significantly lower convenience fees in comparison to BookMyShow. Moreover, BookMyShow has engaged in refusal to deal by signing exclusive contracts with these theatres that act as barriers for any new competitors to enter the market.
Considering BookMyShow’s dominant position in the market, these agreements effectively allow it to control the market and dictate unfair terms with the business users.
BookMyShow, in reply, stated that no monetary incentives were provided to the business. Instead, it was claimed that BookMyShow offers security deposits to adjust ticket prices and revenue share of the theatres. BookMyShow also denied that they have any significant market share and asserted that exclusive agreements are a necessity as BookMyShow is a relatively new entrant to the market.
The CCI rejected BookMyShow’s arguments and found that there is a prima facie case of abuse of dominance under section 4 by BookMyShow in its agreements with business users. The Commission found that the terms of the agreements between BookMyShow and the theatres prima facie have the potential to deny market access to competitors as well as potential entrants which can make it anti-competitive under Section 19 (3) of the Competition Act, 2002. The Commission is of the view that the exclusive agreements offered by BookMyShow can restrict the freedom of theatres and multiplexes to contract with competitors of BookMyShow.This limits the consumers’ choices as well.
On establishing the existence of a prima facie case, the CCI directed the DG to commence an investigation under Section 26(1) of the Act.
Analysis of the case
BookMyShow’s capability to induce businesses’ to enter into exclusive contracts with them and adhere to unfair contractual terms, in itself, shows the position of dominance that is enjoyed by the enterprise in the market. This is the main area of concern in the present case.
In the e-commerce industry, exclusive contracts can either be agreements where a product is sold exclusively on a single platform or only a single brand is listed in a particular product category. They can drive up the cost of competitors in acquiring business users on their platforms. The CCI in its market study on e-commerce, however, emphasizes that exclusive agreements can generate efficiencies and improve inter-brand competition. Hence, they must be studied on a case-by-case basis.
Especially in e-commerce, the number of users already connected to a platform positively affects the value of a network connection for a user. This is otherwise known as network effects. Hence, businesses tend to become dependent on platforms with a large user base like BookMyShow as they significantly widen their access to the market and their potential for growth. The platform, hence, has a higher bargaining power which allows it to set unfair contract terms for businesses and unilaterally revise contract terms. The Commission takes notice of such unfair contracts under section 4 of the Act if the contracting party is a dominant enterprise in the relevant market.
In the BookMyShow’s case, there is a need to analyze it from multiple perspectives. Competitors such as the informant have no option of even getting businesses to consider their platform in light of the exclusive agreements.
Despite the unreasonable terms in the agreement, from the businesses’ perspective, terminating their exclusive contracts with BookMyShow would cost them more. Notwithstanding the considerable additional cost paid to terminate the contract, they will also not receive the same level of visibility on any other platform. Finally, BookMyShow imposes significantly high convenience fees on their customers, who are also limited in their options.
CCI’s Recent Trends in relation to e-commerce
The CCI, in connection with P2B contracts in its market study on e-commerce in India, mentions how exclusive contracts in e-commerce raise alarm when they are used to foreclose competition to rivals or impede entry. The market study, however, does not impose any regulations and only makes recommendations. It is left up to the platforms to decide what must be the basic contract terms, penalties imposed for breach, conflict resolution process, etc.
The existing jurisprudence in relation to P2B contracts in e-commerce is also lacking. Recently, a few cases involving major e-commerce players have been looked into by the CCI.
In January 2020, CCI ordered an investigation into Amazon and Flipkart for preferential listing and deep discounting as well as exclusive agreements. This can affect small sellers on these websites who struggle to gain visibility as well as offline retailers who cannot access the product from anywhere, but the platform. The DG is currently in the process of investigating whether these practices are exclusionary and constitute an AAEC in the market.
Following that, in 2021, the CCI touched on the issue of unfair P2B contract terms. The CCI ordered interim relief in favour of two hotel chains that were delisted on MakeMyTrip (MMT) pursuant to an agreement between OYO and MMT. CCI held that there are limits to contractual freedom if it leads to anti-competitive outcomes. Moreover, the hotel chains did not breach any contractual obligations to merit delisting. The CCI found that the agreement between OYO and MMT was exclusionary and created barriers to entry in the market.
As recently as 2022, the CCI explored exclusive agreements in conjunction with platform neutrality in the case of Swiggy-Zomato.
In addition to low commissions and minimum business guarantees, Zomato offers exclusivity to restaurant partners. The CCI decided it was worthwhile to investigate how platform neutrality might be impacted by exclusivity, minimum business guarantees, and preferential listing of specific restaurant partners.
Ultimately, there is not enough regulation in the e-commerce sector to stop these anti-competitive practices and though the CCI remains aware of the issues involved in e-commerce contracts, the inherent problem with their management is that the CCI does not undertake measures before the problem even arises i.e. ex-ante regulations.
Way Forward
One interesting recent international development is the EU’s Digital Markets Act (DMA) which is yet to be adopted by the European Parliament and Council. The Act aims to regulate the largest digital companies by enforcing certain obligations if they meet the criteria of “gatekeeper” as set out in the Act. These criteria will be based on the platforms’ significance in the market, the Core Platform Services (CPS) it provides, and whether it has a durable position in the market.
Once platforms qualify for the term, they will be subjected to a much more stringent regulatory framework than other non-gatekeepers. The overall goal of the Act is to ensure that there is a more equitable and fair business environment for all parties concerned. Articles 5 and 6 of the Act prescribe specific prohibitions and obligations limiting exclusive agreements, prohibiting self-preferencing, and promoting transparent policies.
Germany has already brought into force an Act against Restraints of Competition (ARC) which implements the “gatekeeper” concept and has already initiated proceedings against Facebook, Amazon, Google, and Apple.
India is in need of such a system that effectively holds e-commerce giants responsible for their contractual relations and evens the playing field to prevent the exploitation of business users in the market.
Recently, the US has proposed a new regulatory body known as the Federal Digital Platform Commission to develop and enforce new regulations that would, among others, curb anti-competitive practices. This is similar to the Digital Markets Unit that has been established in the UK within the Competition and Markets Authority.
A regulatory authority to specifically address e-commerce issues would reduce the burden on the CCI and also ensure that the Competition Law regime in India keeps up with the latest developments as and when they crop up, particularly in such a dynamic sector. This is already in motion according to recent developments and would be a welcome step in the area of e-commerce regulations.
Conclusion
The number of e-commerce cases in India is only bound to increase unless some regulatory measures are undertaken. The e-commerce industry is a very innovative industry that ultimately benefits consumers enormously. However, dominant digital players with a huge market share can be a threat to competition in the market. The need of the hour is to undertake ex-ante measures as seen in foreign anti-trust law regimes and ensure that platforms must be incentivized to remain transparent while dealing with businesses and refrain from unfair contract terms. These businesses cannot survive without listing themselves on these platforms and hence, protective measures must be taken to foster a healthy competitive business environment.