This article is written by Srinandini Kar, a 3rd year law student from Symbiosis Law School, Hyderabad.
Competition Commission of India
(Case No. 17 of 2014)
Recently many cases have been filed against e-commerce sellers for breaching the provisions of the Competition Act of 2002. One such case is of Mr Ashish Ahuja Vs SnapDeal. Here, the Informant, Mr Ashish Ahuja was a seller of storage devices which mainly included the sale of SanDisk products through an online portal, SnapDeal and entered into an agreement for the same. After a subsequent lapse of time, SnapDeal took down the informant’s products and refused to sell the products. On contacting SnapDeal regarding the same, the informant was asked to produce a “No objection Certificate “from SanDisk showing that he was their authorised dealer. The issue here as questioned by the informant was that a comparison letter given by SnapDeal about the number of authorised sellers of SanDisk products also included a number of unauthorised sellers selling their SanDisk products through its online portal. The above case arises out of this issue. The informant accused SnapDeal and SanDisk in indulging in anti-competitive practices and abusing their dominant position in the online market and filed a complaint under section 19(1) (a) before the Competition Commission of India contending that there was a violation of section 3 and 4 of the Competition Act, 2002.
Keywords: Competition Law; E-commerce; Competition Commission of India
E-commerce or electronic commerce can be defined as the exchange of goods and services taking place with the help of the internet. The last decade has seen the upsurge in the e-commerce sector in India. Internet and innovative technology like hyper-local logistics, analytics driven customer engagement, digital advertisements and various digital modes of payments have played a key role in the growth and development of this sector. E-commerce has directly impacted micro, small and medium industries (MSME) by providing various services such as banking, financing, technology and has also had a favourable cascading effect on other industries. The growth of e-commerce in India has boosted employment rates, increased revenues from export, increased the tax collection by ex-chequers and has provided customers with a wide range of goods and services to choose from.
The Competition Commission of India (CCI) is the authority which has been established under the competition law in India to eliminate such practices which may have “adverse effect on competition”, promote healthy competition in the market, ensure protection of consumer interest and ensure freedom of trade between different participants in the market. This act even covers any such act that is done out
side the territory of India but has affects the market within India.
side the territory of India but has affects the market within India.
With the accelerated growth in e-commerce the Competition Commission of India is keeping a close eye on the various entities operating in this sector to avoid issues relating to price discrimination and abuse of dominant position. Apart from this, the continuous grievances of the traditional brick and mortar shops against their online counterparts in the retail market implores the Competition authorities to look into the repercussions of such business practices. In such a scenario the CCI’s effort to put an end to questions relating to such business practices is commendable.
The current case revolves around the very same issue of price discrimination and abuse of dominant position by one such e-commerce company as alleged by the informant. This case further deals with the issue of warranty policy of a company to protect its distribution channel on online portal.
FACTS OF THE CASE
- The informant, Mr Ashish Ahuja was a seller of storage devices such as pen drives, hard disks and laptops among other items.
- Snapdeal (Opposite Party No.1), is an ecommerce company which provides a platform to various sellers to sell their goods for a commission which depends on the product category. It has its tie-ups with different cargo/logistics companies who pick up the products from the sellers and deliver them to the respective customers and the money collected from the customers is given to the sellers depending upon the payment cycle.
- On the other hand, SanDisk (Opposite Party No.2) engages into business relating to manufacture and sale of non-volatile memory drives, flash drives and storage devices of various capacities.
- The informant had entered upon an agreement with Opposite Party No. 1 for sale of his products on their platform and subsequently started selling pen drives, hard drives, laptops etc through the online web portal.
- Eventually Opposite Party No.1 stopped the sale of the informant’s goods and took off his products from the list.
- After repeated attempts of getting in touch with the Opposite Party No.1, the informant received a call from the Accounts Manager of Opposite Party No.1 conveying to him that only the authorised dealers mentioned in the list produced by Opposite Party No.2 could sell their items through its web portal.
- Further on the demand by the informant seeking the list, he was informed that the list was confidential.
- To this the informant had sent several mails to Opposite Party No.1 stating that the product being sold on the web portal were obtained from the open market and he was fully authorised to sell them.
- On receiving this information, the Opposite Party No.1 asked the informant to produce a No Objection Certificate (NOC) from Opposite Party No.2 without which he would not be allowed to sell his products on its web portal.
- Even on further assurance by the informant that the SanDisk products which he was selling was readily available in the market, Opposite Party No.1 still demanded the NOC from the informant which implied that only on becoming an authorized dealer of Opposite Party No.2 could the informant sell the product through the web portal of Opposite Party No.1.
The informant approached the CCI against this backdrop of the scenario under Section 19(1)(a) of the Competition Act,2002 against Opposite Party 1 and 2 inter alia alleging contravention of provisions of Section 3 and 4 of the said Act.
While the CCI did not specifically outline any issue, the following questions can be laid down:
- What is the relevant market for online shopping taking its distinct characteristics from offline shopping into consideration?
- Whether both the Opposite Parties (SanDisk and Snapdeal) are dominant players in the relevant market?
- Whether the practice of limiting the sale by authorised dealers on online portals by SanDisk can be considered as abusive?
In light of the facts of the case given above, the main contention of the informant was that even on repeated assurance by the informant that the products being sold by him were only SanDisk products and that they were easily available in the open market, Opposite Party No.1 was demanding an NOC from him which implied that he had to become an authorised dealer of the products of Opposite Party No.2 and only then could he sell his product through the web portal of Opposite Party No.1.
The informant further produced a letter issued by Opposite Party No.2 which said that no after sales services or warranty support would be provided for SanDisk products purchased through unauthorised network partners which according to the informant was a move by the Opposite Party No. 2 to create monopoly in the market wherein the products could only be sold by authorised dealers or only if the products were bought from them and not from the open market.
On the other hand, with respect to Opposite Party No.1, the informant contended that there were 13 sellers selling their SanDisk products online and only 4 were declared authorised dealers of those products by Opposite Party No.2 and thus Opposite Party No.1 was targeting him.
Opposite Party No.2 was thus charged of abusing its dominant position in the market by regulating the mode of sale of its products and also by regulating the prices of its products through the letter benefitting the authorized dealers and hence preventing the informant from selling the products at competitive prices.
COURTS HOLDING AND REASONING
Answering the first issue, the CCI was of the view that the relevant market for products in the present case to be the market for small-sized consumer storage devices like USB pen drives, SD Memory Cards and Micro SD Cards. The Commission was further of the view that both offline and online shopping differs in terms of discounts given, shopping experience and the consumers weigh the options available to them and accordingly make their decisions. If the consumer finds the prices of online market increasing, then the consumers shift towards the offline market and vice versa. Thus, the commission highlighted that both these markets are different channels of distribution of the same product and are not different relevant markets. The relevant geographical market would be India and the relevant market would be small sized market for such storage devices in India.
Coming to the second issue, the commission observed that in the storage devices market, there were other players such as Kingston, Transcend, HP among others thus indicating that the market was not concentrated. Further the commission determined that SanDisk was a market leader by holding 35% of the market share followed by the other market players and as of 2014, SanDisk was reported to be the top vendor across all the 3 categories i.e. micro SD cards, SD cards and flash drives thus making it the market leader.
Dealing with the issue of abuse of dominant market, the commission observed that the demand by SanDisk that the storage devices sold online should be sold only by authorised dealers or by itself cannot be considered to be abusive as it is within its right to protect the sanctity of its distribution channels. As the demand in the market greatly depends on the quality, brand image and goodwill of the products in the market, it is very important for a company to assure that the products being sold on various web portals are genuine and are of good quality and it appears to be a wise business policy to discourage the sale of any company’s products through unauthorised sellers. Further the clarification by SanDisk vide the letter stating that after sales services and warranty would be available only to products purchased from authorised dealers or itself can only be considered as part of a business policy and not the abuse of its dominant position in the market.
As far as Snapdeal is concerned, it was observed by the commission that it was not engaged in the buying and selling of the storage devices but merely provided a platform for the dealers to sell their products online on a commission basis. In the market there are also other players such as Amazon, Myntra, Flipkart and others and the e-commerce markets thrives on various discount and deals. thus, Snapdeal cannot be considered as a dominant player in the market.
With regards to the question of Snapdeal allowing sellers other that the 4 authorised network partners of SanDisk, the commission observed there was no evidence which was produced by the Informant to support the fact that these sellers had not originated from the authorised sellers and which satisfied the requirements of SanDisk’s letter.
Based on the facts the commission was of the view that by restricting the sale of products by SanDisk to only authorised dealers, it was not seen to be a violation on Section 3 and Section 4 of the Competition Act,2002 as alleged by the informant. The commission further stated that there was no case of contravention of the provisions of the act by the Opposite Parties and the information was ordered to be closed.
EVALUATION OF THE CASE
The present case was filed by the informant under Section 19(1)(a) of the Competition Act,2002 against Opposite Party 1 and 2 inter alia alleging contravention of provisions of Section 3 and 4 of the said Act which talk about exclusive agreements by an enterprise or association of enterprises or person or association of persons which have adverse effect on competition and abuse of dominant position and predatory pricing by various market entities respectively. The main contention of the informant was that Opposite Party No. 1 and 2 were abusing their dominant position in the market and were creating monopoly. However, the CCI was of the view that the action by Opposite Party No. 2 to sell their products only through authorised dealers or themselves did not attract Section 3 or section 4 of the act as this type of business policy is very common and was unlikely to cause adverse effects on competition.
This decision of the CCI has also been reiterated in a similar case of Mohit Manglani Vs Flipkart India Private Ltd & Ors where, the informant Mr Mohit Manglani filed a case against Flipkart India Private Limited, Jasper Infotech Private Limited, Xerion Retail Private Limited, Amazon Seller Services Private Limited, Vector E-Commerce Private Limited with the Competition Commission of India under Section 19(1)(a) of the Competition Act alleging that these e-commerce companies were indulged in anti-competitive practices and also had entered into exclusive agreements with sellers of the goods and services which violated the provisions of Section 3 of the said act . The Competition Commission was however of the view that the exclusive agreements with the sellers did not lead to any appreciable adverse effect on competition.
Further in another case of M/S Jasper Infotech Pvt. Ltd. vs. M/s Kaff Appliances Pvt. Ltd. & others, the CCI observed that both online and offline markets are only different channels of retail of the same goods and services and do not constitute different relevant markets .
The observation of the commission regarding the services and warranty being provided only to product being purchased from authorised dealers or itself seems to be a very fact-based determination that can also happen in case of offline shopping. As far as E-commerce is concerned, the important observation is the recognition of the online shopping platforms as just another distribution channel and not different from offline market (traditional commerce). This has had a great impact on regulating competition as the market share of ecommerce is very small and comes up to only 0.5% of the retail market. Thus, the major e-commerce companies like Amazon, Snapdeal, Myntra and others cannot be said to be dominant players in the market as they do not meet the very prerequisite condition if one seeks to proceed for anti-competitive practices against them.
A recent example for this would be Reliance Jio which is providing free services to its subscribers cannot be considered to be adopting any predatory pricing policy as it is not a dominant player in the market. Hence as long as this position stands, Ecommerce entities will not be considered to be dominant players in the market.
 Supra 1.
 Section 3, Competition Act,2002
 Section 4, Competition Act,2002
 Mohit Manglani Vs M/S Flipkart India Pvt Ltd & Ors, Case No. 80 of 2014, available at http://www.cci.gov.in/sites/default/files/802014.pdf
 M/S Jasper Infotech Pvt. Ltd. (Snapdeal) vs. M/s Kaff Appliances (India) Pvt. Ltd. & others, Competition Commission of India, Case No. 61 of 2014, available at http://www.cci.gov.in/sites/default/files/612014_0.pdf
 Divye Sharma, Competition Law and E-commerce: A Concern for the Future, (May27, 2015), available at http://www.mondaq.com/india/x/400368/AntitrustCompetition/CompetitionLawAndECommerceAConcernForTheFuture
 Upasana Jain, Relaince Jio: TRAI official says predatory Pricing does not apply, (September 22,2016),
available at http://www.livemint.com/Companies/uhVdHDDwGV5v7XiDE7GlPL/Reliance-Jio-Trai-official-says-predatory-pricing-doesnt-a.html