COMPETITION LAW: DOMINANT POSITION- INDIAN TRENDS, THE UBER WAY

In the long and lively series of orders involving the taxi-aggregator space, there has been remarkable inconsistency. Except in one area: what qualifies as “dominant”. This has been changed in a single stroke by the Supreme Court in Uber India Systems Private India Ltd. v. Competition Commission of India & Ors. (Civil Appeal No. 641 of 2017), passed in 3 September, 2019 (“2019 SC Uber Case”). The ramifications of this will be noticed slowly and surely as time passes.

BACKGROUND

Dominance is not viewed as a problem anymore: abuse of dominance is. This concept is core to the Competition Act, 2002 (the “Competition Act”). This is the chief difference with its predecessor, the Monopolies and Restrictive Trade Practices Act, 1970.

In other words, if an entity “passes” (or escapes, based on one’s view of the world!) the dominance test, then there is no relevance of the abuse of dominance test. “Dominant position” is defined in Section 4 of the Competition Act as “a position of strength, enjoyed by an enterprise, in the relevant market in India which enables it to: i) operate independently competitive forces prevailing in the relevant market; or ii) affect its competitors or consumers or the relevant in its favour.” The abuse of dominance element is only examined if an entity is determined to be dominant.

Even if an entity is not dominant, there is still room to challenge on various grounds such as causing an appreciable adverse effect on competition within India. These too have been tried (and failed) within the taxi- aggregator space and it will be the subject of a separate piece. It will suffice to say that in one such case, it was the drivers who were challenged as colluders in a hub-and-spoke model and in another the drivers from the colluders became the victims and the challenge centered around unfair anti-competitive agreements which the drivers were burdened with. Adding to this tangle is the layer of Uber and Ola having large common investors- Softbank, Tiger Global Management LLC, Sequoia Capital and Didi Chuxing and an order actually asked a Chinese wall to be set up between the two.

The focus of this note is the understanding of the term “dominant position” in the context of Indian competition law in the taxi-aggregator space.

The defence strategy for a large company on the radar for being dominant is: (i) to expand the “relevant market”; (ii) demonstrate that it is not dominant- because then the question of abuse will not even arise; and (iii) appreciable adverse effect.

Before the 2019 SC Uber Case, there was little to no focus on predatory pricing in the stream of competition law cases in taxi-aggregator space. This is interesting because predatory pricing is a textbook example (including in the Competition Act) of a factor of abuse of dominance.

Before the 2019 SC Uber Case, there was remarkable consistency in a stream of orders as follows: if there is even one other competitor in the relevant market, there is no one party who is dominant. As an illustration, let us imagine a relevant market where there are two major players. As long as there is enough evidence that one player can create enough competition for the other, the allegation of dominance would fall.

PRE- 2019 SC UBER CASE

The position pre- 2019 SC Uber Case, as summarized below, was to view “dominant position” as a binary concept:

In Re: Samir Agarwal and Ors. (Case No. 37 of 2018) [CCI]

The CCI chose to not analyse whether any of the opposite parties was dominant or not because it was not contended by the informant. It still was noted that “given that the market in question features two players, Ola as well as Uber, none of which is alleged to be dominant… the provisions of the Act clearly stipulate dominant position by only one enterprise or one group and does not recognise collective dominance.”

In Re: Meru Travel Solutions Private Limited and Ors. (Case Nos. 25, 26, 27 & 28 of 2017) [CCI]

In Meru (Case Nos. 25 and 26 of 2017), the informant had relied on a report according to which Ola’s and Uber’s market share in the relevant market was high and argued that Ola and Uber were “collectively dominant”. The CCI rejected the contention of the informants stating that the Competition Act does not allow for more than one dominant player under Section 4.

In Re: Mr. Vilakshan Kumar Yadav and Ors. (Case No. 21 of 2016) [CCI]

The CCI cited “exists stiff competition”, at least between Ola (i.e. the opposite party) and Uber, with regard to the taxi-aggregator space in Delhi. Further it was noted that various other players were also operating in the relevant market. Therefore, CCI observed that the market was competitive and none of the players can be said to be dominant in the relevant market.

In Re: Meru Travel Solutions Private Limited (MTSPL) and Ors. (Cases No. 81 and 96 of 2015) [CCI]

The CCI concluded that existence of stiff competition between two independent entities in a relevant market is enough to eliminate the question of dominance of any one of them.

In Re: M/s Mega Cabs Pvt. Ltd. and Ors. (Case No. 82 of 2015) [CCI]

The CCI observed that significant presence of various players negated the possibility of one of the significant players acting independently of its competitors. On basis of this, it concluded that the opposite party, which was one of the players having a significant presence in the relevant market, was not dominant.

In Re: Fast Track Call Cab and Ors. (Case No. 6 & 74 of 2015) [CCI]

It was held that the Competition Act does not provide for collective dominance of two independent entities (Ola and Uber) at the same time in a relevant market. It was observed that the “essence of Section 4 of the Act lies in proscribing unilateral conduct exercised by a single entity or group.”

CHANGE IN THE INTERPRETATION OF “DOMINANCE” – SC UBER CASE

This customary understanding of the term “dominant position” (above) has been in effect altered by the 2019 SC Uber Case.

The main issue was with respect to the Competition Appellate Tribunal order dated 7 December 2016 in Meru Travel Solutions Private Limited v. Competition Commission of India and Ors. (COMPAT Appeal No. 31/2016) in which COMPAT ordered the Director General to investigate whether Uber’s taxi-aggregator service in Delhi NCR were in violation of Section 4 (abuse of dominance) of the Competition Act, i.e. whether Uber was in a dominant position in the relevant market (taxi-aggregator service in Delhi) and whether it was abusing its dominant position.

The Supreme Court did not limit its analysis of dominant position to the presence of a competitor in the relevant market. Rather, the Supreme Court linked “predatory pricing” as a strong factor which can lead to a prima facie view of “dominant position” in the relevant market.

Under Section 4 of the Competition Act, one of the factors of abuse of dominance is imposition of “unfair and discriminatory price in purchase or sale (including predatory price) of goods or service.”

Explanation (b) of Section 4 defines “predatory price” as:

“the sale of goods or provision of services, at a price which is below the cost, as may be determined by regulations, of production of the goods or provision of services, with a view to reduce competition or eliminate the competitors.”

The following facts seem to have some persuasive value on the Supreme Court:

  1. Uber was offering fidelity inducing- “unreasonably high incentives over and above and in addition to the trip fare received” to the drivers; and
  2. Uber was losing ₹ 204 per trip “which does not make any economic sense other than pointing to Uber’s intent to eliminate competition in the market.”

The Supreme Court therefore reached the conclusion that this conduct would prima facie attract Explanation (a) (ii) of Section 4 of the Competition Act.

The Supreme Court on the issue of abuse of dominant position observed that if this “dominant position, whether directly or indirectly, imposes an unfair price in purchase or sale including predatory price of services, abuse of dominant position also gets attracted. Explanation (b) which defined “predatory price‟ means sale of services at a price which is below cost.”

This judgment of the Supreme Court is critical because it, in effect, overrules the limited lens used for viewing dominant position which was as discussed above the norm in several other cases in the taxi-aggregator space.

FURTHER UPDATE

There is a recent National Company Law Appellate Tribunal order on dominance in taxi-aggregator space in 2020 [Samir Agrawal v. Competition Commission of India & Ors. (Competition Appeal (AT) No.11 OF 2019)]. Here, the appellate tribunal appears to have reverted to the pre- 2019 SC Uber Case position.

A vital aspect of this case was that the allegation was on usage of respective algorithms for price-fixing among the drivers (as opposed to any collusion between the cab-aggregators). There does not seem to be an allegation or analysis of the predatory pricing angle to determine dominant position. Also, there appears to be no allegation or consideration of whether Ola and Uber can be viewed to be one group due to existence of common investors (which was an allegation in In Re: Meru Travel Solutions Private Limited and Ors. (Case Nos. 25, 26, 27 & 28 of 2017), where the CCI instructed the imposition of a Chinese wall between the two due to common funding).

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