Client Poaching using Geo-fencing Technology – A Potential Antitrust Concern

[By Anmol Aggarwal & Ria Bansal]

The authors are students of Rajiv Gandhi National University of Law.

 

Introduction 

The advent of Artificial Intelligence (‘AI’) technology has opened the gates to many potential methods of abuse of dominance that would not have the potential to exist on a large scale without AI technology. Geo-fencing is one of those methods, which, if used by a dominant firm to cause market rupturing, can lead to antitrust concerns. Geo-fencing refers to a technology used to mark a digital geographical boundary using tools like Global Positioning System (‘GPS’) around a specific determined territorial area or, in simple words, create a geo-fence around that specific area. Although primarily used for healthy market advertisement practices, this technology can become a leading concern in the antitrust regime.  

Although the illegitimate use of geo-fencing is regulated by various technology acts like the Digital Personal Data Protection Act, 2023, and Information Technology Act, 2000, among others, this piece will argue on how dominant firms indulging in client-poaching using geo-fencing can lead to an anti-competitive practice and calls for the need of investigative tools and regulation of the existing Competition Law Authorities in India. The authors also propose a risk-assessment model for the potential abuse of the dominant position using geo-fencing technology. 

Client-Poaching Vis-à-vis Geo-fencing 

Geo-fencing is often used as a market penetration technique used by firms to steal the potential or existing clients of a rival firm. This poaching takes place through extensive digital marketing practices (such as advertisements) that a firm indulges in, which helps it offer comparatively better prices for its products than its rivals offer. Although it can be regarded as a healthy practice for new firms trying to penetrate the market, geo-fencing can lead to greater evil than good if not regulated by the competition authorities. As stated above, the usage is beneficial if deployed by a new market entrant as it can help it gain market power and, in turn, maintain healthy competition in the market. The specific laws pertaining to geo-fencing are capable enough to identify the illegitimate use of geo-fencing. However, the issue arises when a new market entrant and a dominant firm both deploy geo-fencing techniques to gain market power. The inability of specific laws to draw a line between the acts of these two types of firms calls for competition law authorities to interfere and prevent the foreclosure of competition in such a case. The same will be better understood through this illustration showcasing two different situations -  

Situation 1 - A firm ‘A’ trying to make its place in the relevant market of ‘house brokerage’ deploys a geo-fencing technique to poach clients from its rival firm ‘B’ in the same relevant market. It deploys a geo-fence around the offices of firm ‘B’ and bombards the potential clients of ‘B’ with advertisements showing better house prices. With the help of this technology, ‘A’ was able to break the entry barrier and make its place in the market, which led to the entrance of a new market player and the promotion of healthy competition in the market. 

Situation 2 - A dominant firm, ‘X,’ with considerable market power and a market share of 90% in the relevant market of ‘house brokerage’ deploys a geo-fencing technique to poach clients from its rival firm, ‘Y,’ which is the second largest player in the market, by providing its potential clients with advertisements of better prices for the houses. This leads to ‘Y’ losing its clients and eventually eliminating firm ‘Y’ from the relevant market, leaving ‘X’ with a monopoly position with no rival. 

Now, in both of the situations mentioned above, the technique of geo-fencing was deployed by the firms. When we see it through the lens of specific laws, there is no technical illegality in the action of the firms in both cases, as advertising using geo-fencing is a practice that firms indulge in day-to-day life, and there is nothing against the law in digital advertising of better prices to the potential customers. 

However, when the same is seen from the eyes of Antitrust Law, we will find that in ‘situation 2’, there is a foreclosure of competition in the relevant market of ‘house brokerage’. However, to determine the same, the Competition Commission of India (‘CCI’) uses investigative tools to determine factors like relevant market and market power, among others, and ultimately finds out whether a firm is abusing its dominant position. The same kind of investigation is impossible if done through the lens of specific laws as they lack the requisite tools and powers to identify whether market foreclosure is taking place. 

Solutions 

The existing solutions, like the doctrine of special responsibility for the dominant firms, are capable of curbing this problem. The doctrine of special responsibility, as stated by the court in the EU case law of Michelin v. Commission, refers to the responsibility of a dominant firm to take special care of its actions so that its conduct does not impair competition in the market. 

However, the authors believes that additional methods, beyond the existing antitrust principles are required to curb this problem in the future and, therefore, proposes a model similar to the recent risk assessment model of the proposed global AI regulatory framework. Under this model suggested by the authors, the firms can be divided into parts according to their market powers in respective relevant markets. Now, these parts can be categorized ranging from high risk to moderate, low and negligible risks according to the extent to which geo-fencing technology could harm the competition in the market. 

CCI or a new separate regulatory body under CCI’s control can regularly check the firms falling in the high-risk and moderate-risk brackets. This will help curb this futuristic problem of the abuse of dominance using geo-fencing technology, even before the firm indulges in it. A constant check by the regulatory body will help prevent market distortion practices by dominant firms who plan to use geo-fencing technology for client-poaching from their rivals. 

Conclusion 

The problem of client-poaching using geo-fencing technology may not be the most prominent antitrust concern of the country today. However, as the firms start adopting AI technology and look for loopholes to abuse their dominant position and cause distortion in the market, they can soon adopt such tactics to escape the existing framework of Competition Law in the country. Thus, the risk assessment model and the creation of a new regulatory body proposed by the authors for measuring the extent of abuse of dominance using geo-fencing to poach clients can curb this antitrust concern very efficiently in the coming future. 

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