[By Prerna Kapur]
The author is a fifth year student of National Law University, Orrisa.
Background
The Competition Commission of India (“CCI”) vide order dated 28.02.2019 dismissed the allegations against one of India’s largest multiplex chains, Inox Leisure Ltd. and its beverage partner, Hindustan Coca-Cola Beverages Private Limited (“parties”). The allegations concerned contravention of provisions prohibiting tie-in arrangement, exclusive supply and distribution agreements under Section 3(4)(a), 3(4)(b), and 3(4)(c)of the Competition Act 2002 (“the Act”) respectively. These allegations were two fold-
First, that the agreement between the parties of selling Cola-Cola’s products with the exclusion of any of its direct competitors amounted to an exclusive supply agreement which crafted ‘Appreciable Adverse Effect on Competition’ under Section 19(3) & Section 3(4) of the Act. An informant revealed that difference between the price of Diet Coke and Minute Maid Pulpy Orange Can sold at multiplexes versus that sold other local retail stores in Hyderabad is approximately Rs. 22.00/- and Rs. 34.00/- respectively. Emphasis was also placed on the legislative intent of the Legal Metrology (Packaged Commodities) Rules 2011 which was recently amended to prohibit the mischief of dual pricing of identical products of the same brand and quality in India. The collusion between the two parties had resulted in vertical restraint since Inox (as a retailer) and Coca-Cola (as the sole supplier of beverages) fell into different levels of the supply chain.
And second, despite the absence of a tie-in agreement in the literal sense, viewers were compelled to purchase essential commodities like packaged water bottles and other beverages of only one brand provided to them by the multiplex, thereby limiting their right to choose.
Consequently, the informant sought relief before the CCI against the malpractice of execution of such anti-competitive agreements.
CCI, however, decided to exculpate the opposing parties based on the flexibility of the agreement entered between them which was earlier characterised as an “exclusive supply agreement” by the informant. Not only was the term “Exclusive Partner of Beverages” omitted from the initially drafted agreement of the parties entered in 2008, but clauses like, “the agreement entered by the parties can be terminated by giving a 60 days’ notice” was also incorporated alongside. These adjustments were seen to decimate entry and exit barriers to eliminate any competition concerns. Hence the CCI observed that market power does not rest with the manufacturer simply because the distributor can switch to sell the brands of competitors, if it were offered a better commercial deal. However, it is worth mentioning here that the supply agreement between the parties has been lingering for over eleven (11) years now.
Statistics further sided with Inox as it claimed to own only one hundred and twenty eight (128) multiplex properties with over five hundred and twenty (520) screens across India limiting the possibility of executing similar agreements. That said, its competitors like PepsiCo. by 2011 alone had entered into such agreements with a large number of multiplexes having about six hundred (600) screens (namely that of Big Cinemas, Cinemax and Waves Cinema) thereby distributing its market share to avoid a dominant status.
CCI’s after thought that there is no explicit condition that consumers have to necessarily buy these goods to watch a movie were seen as attempts to justify its decision and to further that there is no tie in agreement within the realms of Section 3(4)(a) of the Act.
Lock-In and Lock-Out Arrangement
This decision could possibly stir into a catalyst of agreements between manufacturers and sellers encompassing lock-in of consumers and lock out of competitors. While CCI maintained its position that purchasing beverages is not indispensable to the “movie theatre experience”, let’s face it – how often do we really enjoy a movie without enjoying a beverage at hand? The agreement between Inox and Coca-Cola is moulded to portray fluidity but, Inox’s beverage partner has remained unchanged since 2008. The retailer’s ability to charge above-competitive prices for its aftermarket service product depends largely on the availability of substitutes provided to the customer. But in the present scenario there are none available. Competition law compels market players to search for better permutations and combinations for providing greater efficiency and fluidity in the market structure. Shuffling and re-shuffling of product resources results in output maximization paving way for the finest consumer valuation. In fact, in 2011, the CCI had expressed its concern on the issue that Inox and such other multiplexes enjoy complete economic power, in the sense that its consumers are completely dependent on the food and beverages they provide [i].
The US Supreme Court in the case of Eastman Kodak Co. v. Image Technical Services, Inc. defined market power as, “the power to force a purchaser to do something that he would not do in a competitive market.” It further held that in some instances one single brand product can constitute a separate market in itself. The narrative that CCI poses sits well only because the relevant market here has been extended to all multiplexes at large. Based on this, let’s assume that the relevant market in the CCI’s impugned order is not extended to all multiplexes at large but to those of a single multiplex brand like the aforementioned Supreme Court order permitted. Would that not resultantly increase the market share of Coco-Cola at any given Inox multiplex to a 100%? By broadening the horizons of Inox’s relevant market, CCI resultantly ignores the test of substitutability which has been the tombstone for numerous standards set by the CCI in its earlier decisions.
When the question came before CCI in the Snapdeal case as to whether ecommerce websites shall exist as a distinct relevant market as that compared to the offline market, CCI embraced a neoclassical reasoning. CCI clarified that offline and online markets differ because they provide a different shopping experience in terms of discounts and customer service. Similarly, buyers weigh the options available to them in both the markets and decide accordingly. Therefore, if the price in the online market increases that would resultantly drive the consumer to shift to the offline forum and vice versa. Consequently, the CCI opined that online and offline markets are only different channels of distribution and do not constitute different relevant markets. But in the present case the beverage counter at any given multiplex is not a “different channel of distribution” instead, becomes the enabling factor for limiting a consumer’s inherent power of choice. The reason why food and beverage counters are not different channels of distribution for Coca-Cola is due to lack of alternatives and the inability to choose. Ultimately there exists no bargaining power with the consumer. There is no elasticity in demand simply because the supply of the beverages is driven by the agreement and not by the demand of the consumers. Additional barriers such as the prohibition to bring along food and beverages from outside the multiplex proves to be advantageous only to the supplying brand i.e. Coca Cola.
A Deliberative Shift in Role?
Now considering CCI has always been an advocate of consumer welfare so much so that it rationalised Reliance Jio Network’s predatory pricing in 2017 [ii], factored Origin and Destination overlaps for the sake of air passengers’ convenience in the 2013 Etihad-Jet Airways deal [iii], this decision comes across as deviation in routine.
Furthermore, the CCI has in numerous cases held that a dominant enterprise has a special responsibility vis-à-vis others [iv]. In the Auto manufactures case, the CCI while upholding the Essential Facilities Doctrine held that Original Equipment Manufacturer (“OEM”) had abused their dominance and denied market access of spare parts and diagnostic tools to independent repairers to be able to provide consumers with after sale maintenance, in order for them to effectively compete with the authorized dealers of the OEMs. Although, CCI through various decisions [v] has made it a point to distinguish its powers with that of the National Consumer Disputes Redressal Commission (“NCDRC”), for CCI “protection of consumer’s interest” is not just a latent term in Section 18 of the Act as exemplified in one of its previous orders [vi].
This shift creates an alarming situation and places heavy reliance on the consumer protection mechanism of India which performs more of an adjudicatory role than regulatory one. Its primary function is to compute a compensation amount based on the consumer complaints it receives. Now the waiting game looms around CCI’s future decisions as to whether it continues to adopt this approach or shifts back to its illustrious consumer favouritism approach while regulating competition in India. Being wary of the rise of corporate greed and data privacy violations worldwide, we all know we are secretly rooting for the latter.
References
[i] Case No. UTPE-99/2009 & RTPE-16/2009 Cine Prakashakula Viniyoga Darula Sangham v Hindustan Coca Cola Beverages Pvt. Ltd. May 23, 2011
https://www.cci.gov.in/sites/default/files/HCCBPLDessOrder150611%20%281%29.pdf
[ii] Case No. 03 of 2017 In Re: Bharti Airtel Limited and Reliance Industries Limited May 9, 2017 https://www.cci.gov.in/sites/default/files/3%20of%202017.pdf
[iii] Combination Registration No. C-2013/05/122 Etihad Airways PJSC; and Jet Airways (India) Limited, November 12, 2013https://www.cci.gov.in/sites/default/files/C-2013-05-122%20Order%20121113.pdf
[iv] Case No. 40/2011 In Re. M/s HT Media Limited & M/s Super Cassettes Industries Limited, October 01 2011 https://www.cci.gov.in/sites/default/files/C-2011-40_0.pdf ; Case No. 19/2010 Belaire Owners’ Association v. DLF Limited, HUDA & ors. August 12, 2011, https://www.cci.gov.in/sites/default/files/DLFMainOrder110811.pdf
[v] Case No. 21 of 2018 In Re Shri Rajendra Agarwal and Shoppers Stop Limited July 30, 2018 https://www.cci.gov.in/sites/default/files/case%20no.%2021%20of%20%202018.pdf ; Case No. 44 of 2017 Akhil R Bhansali v Skoda Auto India Pvt. Ltd. October 10, 2017 https://www.cci.gov.in/sites/default/files/44%20of%202017.pdf
[vi] (2010) 10 SCC 744 Competition Commission of India v. Steel Authority of India Ltd. And ors September 09, 2010 https://indiankanoon.org/doc/864375/