[By Priyal Jain and Aditi Saxena]
The authors are students of Rajiv Gandhi National University of Law, Punjab
INTRODUCTION
Recently, the Hon’ble Supreme Court, in an appeal filed by CCI challenging the COMPAT’s decision, has exonerated Schott Glass India Pvt Ltd. (hereinafter, “Schott Glass”), the principal domestic manufacturer of neutral USP-I borosilicate glass tubing, from the allegation of abuse of dominant position. The ruling has led to an important development in the Indian Competition Law jurisprudence with respect to abuse of dominance under Section 4 of the Competition Act, 2002 (hereinafter, “Act”). It has made an important shift from form to effect-based approach in the assessment of abuse of dominance, a development that has long taken place in European jurisprudence.
This blog delves into the nuances that the Supreme Court decisively reaffirmed with respect to the centrality of effects-based analysis in Indian abuse-of-dominance jurisprudence,underscoring that antitrust intervention under the Act must be premised on rigorous economic evidence of actual or likely competitive harm. Additionally, the authors have delineated the effect-based approach in its more evolved form in the EU and the key takeaways that can lead to a more dynamic approach to abuse of dominance in Indian jurisdiction.
APPROACHING ABUSE: ANALYSING THE SUPREME COURT’S APPLICATION OF THE EFFECT BASED STANDARD
While the judgment focused on a variety of aspects like volume-based rebates, functional rebates, margin squeeze, tying or bundling, procedural lapse, this analysis primarily focuses on the assessment of all the abovementioned aspects through the effect-based approach undertaken by the Supreme Court. While assessing the rebates provided by Schott Glass, the Hon’ble Court, drawing from the EU’s Article 102 (c) TFEU and British Airways case, examined the technical realities of borosilicate production and commercial justification of the rebates along with the evidence alluding to no foreclosure in the market, rather, an increase in production and imports from the competitors. Instead of relying on a formalistic approach, the Supreme Court scrutinised the margin squeeze allegation by applying the TeliaSonera test of an efficient competitor (“AEC”) and also observed the positive EBITDA, absence of foreclosure effect in the market before exonerating Schott Glass from the said allegation. The court examined the tying accusation by employing the conditions of the Microsoft Corp. case. It noted that although converters were not coerced to buy the two products together, there existed an objective justification in the form of manufacturing efficiency to offer a multi-product volume discount.
While the NCLAT in Google LLC v. Competition Commission of India had deployed the effect-based test in assessing the abuse of dominance, the Supreme Court in the instant case has established the essentiality of the same in an inquiry under Section 4 of the Act. However, it is pertinent to note that while the Hon’ble Court has relied on actual evidence, inter alia, sales data and import data, it failed to adequately address how to assess the likely effects of any conduct. The court refrained from delineating a clear framework or any structured guidance for evaluating the potential anticompetitive effects of such conduct in the market, a significant omission considering that abuse of dominance requires a forward-looking economic assessment and not mere reliance on evidence based on historical data.
A further intriguing detail of the judgment is that while the court holds that abuse of dominance is a practice that results in, or is likely to result in, an appreciable adverse effect on competition (“AAEC”), it omits to clarify the fact that section 4 does not explicitly mention AAEC. Although it is well within the jurisdiction of the Supreme Court to bring a new development in law, its failure to acknowledge the potential oversight in law, if one is indeed perceived, is concerning. In a country where the competition law is still in its very formative and evolving phase, the rulings of the Supreme Court hold huge significance in shaping the law. However, the amount of clarity brought by this judgment is still in the fog.
THE EU’S EFFECTS-BASED TRAJECTORY: A JURISPRUDENTIAL OVERVIEW
Since the adoption of the 2008 Guidance Paper on exclusionary abuse of dominance, European case law has developed and deflected away from its prior formalistic approach and the per se prohibitions, whereby the legal nature or form of a conduct seemed to matter more than its effects, to a more economically grounded effects-based approach. For instance, in the Hoffman-La Roche judgment, the CJEU ruled that exclusive dealing and conditional rebates were per se illegal. In other words, whether these conducts produced any anticompetitive actual or potential effects and whether such effects were potentially compensated by efficiencies it created was immaterial. The Guidance Paper stated that the European Commission (hereinafter “EC”) would only intervene against exclusionary conduct by dominant firms if, on the basis of cogent and probative evidence, the allegedly abusive conduct is likely to lead to foreclosure. Since the adoption of the Guidance Paper, economic analysis has played a greater role in Article 102 TFEU cases, as this approach takes into account the conduct of the entity in line with analysing the market dynamics and the mainstream economic reasoning.
For instance, in the case of Intel, the Grand Chamber of the Court of Justice indicated that in order to establish the capacity of exclusivity rebates to restrict competition, the Commission must analyse a set of relevant factors, with regard to the specific circumstances of each case. In a similar vein, in Google Shopping, the General Court broached that, to find an abuse under Article 102 TFEU, the Commission has to take into account “all the relevant circumstances”, including the arguments made by the dominant undertaking disputing the conduct’s capability to have anti-competitive effects.
Further, as part of the 2023 amendment to the Guidance Paper, the EC highlighted the effects-based approach to abuse of dominance centred around the standard of “potential effects”, which requires more than hypothetical effects, also excluding the need to prove the existence of actual effects. In line with the principle that EC does not want the implementation of this approach to be made extremely rigid to render the enforcement unduly burdensome, it ensured that the market foreclosure is not restricted to just “the full exclusion or marginalisation of competitors”, but includes conduct that weakens an effective competitive structure even without such exclusion or marginalisation. The revised Guidance Paper also emphasizes that, in certain circumstances, companies that are not as efficient competitors may also warrant protection from exclusionary behaviour by dominant companies, on the basis that “genuine competition may also come from undertakings that are less efficient than the dominant firm, in terms of their cost structure.’’ Lastly, EC has also played a major role in widening the scope of anti-competitive market foreclosure, negating the apprehension of under-enforcement, and evolving the antitrust regime with the burgeoning nature of markets. Thus, the new guidelines represent the EC’s intent to foster transparency and legal consistency in abuse of dominance cases.
LESSONS FROM THE EU: SHAPING EFFECT-BASED ABUSE ANALYSIS
With these draft guidelines set to be adopted in 2025, EC holistically aims at restructuring its “enforcement blueprint” that will capacitate the Commission to streamline the evidentiary and procedural burdens to enable a quicker and more effective enforcement. It is imperative to take note that effective implementation of a workable effect-based approach in line with the Indian economic stature is kernel. The premise of this contention is based on the fact that ‘effects’ in its subjective form is privy to multiple thresholds of assessment. Therefore, the CCI must adopt effective enforcement strategies that are in sync with the economic policies, ensuring that a proper and concrete standard and guidelines for assessment are created, which have a more uniform approach towards abuse of dominance. This necessitates that CCI is capacitated with the requisite resources in the form of timely and clear enforcement strategies, along with capacity building programmes with experts on economics, and empowering the other stakeholders. Ergo, creating “a competition policy apt for new challenges”.
While the judgment outlines that the AEC test is mandatory in the assessment of a margin squeeze case, in the sense that for a gap to create a squeeze it must render an equally efficient competitor in a disadvantaged position, a significant change on the contrary lines has been brought by the amending communication of the EU. It establishes that in markets with high entry and expansion barriers, genuine competition may arise even from less efficient competitors, and hence, mandatorily requiring the AEC test might lead to under-enforcement. Thus, the fair-trade regulator of India shall also adopt a nuanced effect-based approach focusing on dynamic efficiencies, market structure, and consumer harm rather than a mere cost-based efficiency approach. This would thereby strengthen deterrence against foreclosure of competition by dominant undertakings.
Lastly, the ambiguity surrounding Section 4 also comes to light with the Schott Glass ruling of the Supreme Court. Since the Supreme Court considers it appropriate to incorporate the standard of AAEC in abuse of dominance cases, it only becomes imperative to take adequate legislative measures in order to address the lacunae in the Act so that legal certainty can be obtained, benefiting both the companies and the regulators alike.
CONCLUSION
The Supreme Court, through this case, heralded the principle of the Indian antitrust regime protecting the delicate but decisive economic equilibrium, while emphasizing ensuring market contestability and genuine merit-based competition being given impetus. Further, the judgement plays a critical role in ensuring that an effect-based approach is backed by robust, procedurally fair investigation and avoiding flawed evidence for assessing the harm rendered by the conduct of the dominant enterprise. Conclusively, emphasised that antitrust assessment coexists not at the altar of innovation, investment, and consumer welfare. At the same time, it is imperative to recognize that the practice of an effect-based approach in India needs to be backed with a radical restructuring of the enforcement practices, capacity building of the CCI, and guarded with procedural safeguards, keeping in mind the dynamic nature of markets involved.