Abuse of Dominant Position Under the Competition Law

Table of Contents

Meaning of Dominant Position

In a layman’s term, dominance suggests the quality of being more powerful, stronger or more important than anyone else.

But according to section 4, Explanation (a) of the competition act, 2002 dominant position represents a position of power, enjoyed within the relevant market by the company, in India, that permits it to—

operate independently of prevailing competitive forces in the relevant market; or
influence its rivals or consumers, or the relevant market in its support.[1]

So, it can be said that it is the entity’s ability to act independently of market forces that decides its dominant position. No entity can have the supreme control over the market in a perfectly competitive market, particularly when deciding the product’s price.

Relevant Market

After reading the meaning of dominant position mentioned above, the question arises- what is a relevant market?

According to section 2(r) of the Act relevant market means “the market which may be determined by the commission with reference to the relevant product market or the relevant geographic market or with reference to both the markets.”[2]

It is basically the market where goods and services are sold.

There are two types of relevant market. Those are:

Relevant product market^[3] it is defined under section 2(t) of the Act as “a market comprising all those products or services that are considered by the consumer to be interchangeable or replaceable on account of the characteristics of the products or services, their price and intended use.[4] For example, the car market may consist of a separate relevant product markets for compact vehicles, mid-size vehicles, luxury cars, etc., because they are not substitutable because of a slight price increase.
Relevant geographic market^[5]it is defined under section 2(s) of the Act as a market comprising the area in which the conditions of competition for supply of products or provision of services or demand of goods or services are distinctly homogeneous and can be distinguished from those in the neighboring region.

Factors to Determine the Dominant Position[6]

According to section 19(4) of the Act the Commission shall, while inquiring whether an enterprise enjoys a dominant position or not under section 4, have due regard to all or any of the following factors, namely:—

Company’s market share;
Company’s size and resources;
size of the competitors and their importance;
Business economic strength with competitive advantages over competitors;
vertical integration of the company or distribution or service network of such company;
reliance of consumers on the cmpany;
monopoly or dominant status whether gained as a result of any legislation or by way of being a Government company or a public sector undertaking or otherwise;
entry barriers including regulatory barriers, financial risk, high capital cost of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of replaceable products or service for consumers;
countervailing buying power;
market dynamics and market size;
social obligations and social costs;
the relative benefit, by way of the contribution to the economic growth, by the enterprise enjoying a dominant position having or likely to have an appreciable adverse effect on competition;

any other considerations which the Commission can find important to the investigation.

Abuse of Dominance

Section 4 of the Competition Act, 2020 prohibits the abuse of dominant position. It can be said that mere dominance cannot be said to be against the law, but if there is abuse of such dominance then the same is prohibited and the commission can take actions against the same.

Section 4(2)[7] of the Act describes various practices which are abusive in nature and which should not be exercised by any enterprise. Those are:

place unequal or discriminatory requirements directly or indirectly on the purchase or selling of products or services;
directly or indirectly placing unfair or discriminatory rates on the purchase or sale of products or service (including predatory pricing);
prohibit or restrict the manufacturing of products or the provision of services or the market;
limiting or restricting technological or scientific advancement in respect of goods or services to the detriment of consumers;
refusing access to the market in any way, etc.

Now, the abuse of dominant position is widely described into two practices. Which are:

Exploitative Practices: these are those practices where the dominant party abuses its power by enforcing on other companies or customers unequal or unfair conditions.

For example, in Pankaj Aggarwal v. DLF Gurgaon Home Developers Private Limited[8] in case of the allocation of apartments, the contract drawn up arbitrarily by DLF allowed them to be arbitrary with regard to the allocation of area, discreet with regard to details related to the buyer, such as the number of apartments on the floor, and to cancel allocations and forfeit bookings, etc. The Commission found the contracts to be exploitative, and therefore discriminatory toward the consumers.

Exclusionary Practices: these are those practices in which the dominant party uses its power to prevent the entry of competition into the market concerned.

For example, in Re Shri Shamsher Kataria v Seil Honda[9], “where there existed agreements between the dominant entities and the Overseas Suppliers of original car parts which prevented the Overseas Suppliers from supplying parts to independent repairers, such agreements were held to be anti-competitive as they restricted entry of new firms.”

Penalties

Section 27 and 28 of the Competition Act, 2002 specifies the punishments to abuse of dominant position.

Section 27[10] says that- Where after inquiry the Commission finds that any action of an enterprise in a dominant position, is in contravention of section 4, it may pass all or any of the following orders, namely: —

guide any entity engaged in abuse of dominant position, to avoid such abuse of dominant position,
impose such fine, as it may deem necessary which shall not exceed ten percent of the average turnover over the last three preceding financial years, on each of those persons or entity involved in such abuse,
direct that the agreements be amended to the degree and in the manner specified by the Commission in the order;
pass any other order or issue any directions as it may deem necessary.

Section 28 says that the commission has the power to order division of an entity who is in a dominant position to ensure that such entity does not abuse its dominant position.

CASE LAWS

In Re M/s ESYS Information Technologies Pvt Ltd v. Intel Corporation (Intel Inc) &Ors,[11] to assess dominance, the commission has followed the method of looking at the evidences in entirely. In addition to Intel’s market share, the commission acknowledged several other factors such as customer preference due to the brand name, the presence of high entry barriers in the market, Intel’s substantial intellectual property rights, and Intel’s size and reach.
Dhanraj Pillay v Hockey India[12] in this case, Hockey India a dominant body for private professional hockey activity organization in India and hockey player facilities, chose not to add World Hockey Series to the list of sanctioned activities, thus preventing players from participating in the same event. The commission noted that it is one of the features of the Hockey India to sanction events, and can not be said to be violative of the competition laws. In making a further distinction between means and ends, the commission noted that it had to show that Hockey India applied the contention clause in an unjust or unequal manner.

Footnotes:

[1] Section 4, Competition Act, 2002

[2] Section 2(r), Competition Act, 2002

[3] https://www.cci.gov.in/sites/default/files/cci_pdf/competitionact2012.pdf ( visited on 14^th May, 2020)

[4] Section 2(t), competition Act, 2002

[5] Section 2(s), competition Act, 2002

[6] Section 19(4), competition act, 2002

[7] Section 4(2), competition act, 2002

[8] https://www.cci.gov.in/sites/default/files/132155_0.pdf (visited on 15th May, 2020)

[9] https://cis-india.org/a2k/blogs/abuse-of-dominant-position-in-indian-competition-law-a-brief-guide#_ftn12 (visited on 15th May, 2020)

[10] Section 27, competition act, 2002

[11] https://www.cci.gov.in/sites/default/files/392012GG_0.pdf (visited on 15th May, 2020)

[12] 2013 Comp LR 543 (CCI)

Author: Bahaar,
Amity Law School, Noida 3rd year / student