E-COMMERCE INDUSTRY AND COMPETITION LAW

Last decade has witnessed the upsurge in the e-commerce activities across the globe. India is no exception, and hence the result is mushrooming internet platforms, sporadic growth of start-ups and changing consumer preferences. Although the e-commerce industry in India is in its nascent stage, but is already under the Competition Commission’s scanner. It is evident that e- commerce will provoke different set of anti-competitive concerns which may be unknown or unexpected. A number of issues emerge like; Will the existing gamut of rules and regulations would be applicable under these new economic circumstances as well?



E-COMMERCE INDUSTRY AND COMPETITION LAW

India’s e-commerce market was worth about USD 3.8 billion in 2009, it went up to USD 17 billion in 2014 and to USD 23 billion in 2015 and is expected to touch whopping USD 38 billion mark by 2016. US investment bank Goldman Sachs last year in October, pegged the online retail or e-tail segment to be valued at $69 billion. The investment bank has stated that the e-commerce market as whole was expected to breach the $100-billion mark by 2020. It had said the overall online market in the country including travel, payments and retail could reach $103 billion, of which the e-tail segment would be valued at $69 billion.

The increasing use of smartphones, tablets and internet broadband and 3G has led to developing a strong consumer base likely to increase further. RedSeer Consulting founder and CEO Anil Kumar said the Indian E-tailing players might have faced a lot of challenges in 2016, but fundamentally this sector is expected to grow 4X-5X times in the next 4 years. "2017 will be a hotly-contested year, and will differentiate the best from the rest, and also shape the Indian e-Commerce industry for the many years to follow," he added. 
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The report stated that development in the nature of  government regulations on discounting and marketplace, demodemonetisation, slow new customer acquisition and funding drying up were some of the "speed breakers" of the year 2016 for the industry. 

Technology and Internet will play a key role in Indian retail market going forward, especially considering that retail space is expensive and the customer offline shopping experience is not world class due to lagging infrastructure and poor selection, the report said.  Therefore such large scale mushrooming in the e-commerce sector is bound to attract provisions of Competition Law.

In India, the Competition Commission of India ('CCI') is the authority which has established under the Competition Act, 2002 (Act) to eliminate practices having adverse effect on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade carried on by other participants, in markets in India. It covers within its ambit all categories of 'markets' in India including the pharmaceuticals sector as well. Moreover, the Act is extra-territorial and assumes jurisdiction over acts even outside India that may affect a market within IndiaThis article aims to detail the competition law aspects which have come up before the Competition Commission of India.

ASCERTAINMENT OF RELEVANT MARKET

Adverse effect on competition should be established in relevant product market

One of the competition concerns relating e-commerce is whether or not e-commerce constitutes a separate market from the traditional retail activity.Ascertaining the relevant market is the first step in assessing an abuse of 'dominance claim' (More on this below).

In the context of e-commerce, one may argue that online and off- line markets could be considered as distinct markets and therefore online market alone may be characterized as a relevant market. In this regard, the approach of CCI in determining this question remains vital. A famous landmark case dealing with Snapdeal has been given as an illustration below.

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Snapdeal case- 

CCI clarified that both offline and online markets differ in terms of discounts and shopping experience. Similarly, buyers weight the options available in both the markets and decide accordingly. Therefore, if the price in online market increases significantly, then the consumer is likely to shift towards the offline market and vice versa. Following this reasoning, the Commission opined that the two markets-online and offline, are only different channels of distribution of the same product and are do not constitute as different relevant markets.

In the case of, Ashish Ahuja v. Snapdeal.com (Case No.17 of 2014), CCI rejected the allegations of abuse of dominant position by the online portal Snapdeal.com and SanDisk Corporation in the portable small sized consumer storage device market.

Facts- The complainant sold SanDisk products amongst others alleged that Snapdeal.com had barred him from selling products through its online platform stating that only authorised dealers could sell SanDisk products on the portal. It was averred by the complainant that the e-commerce website and the Indian Sales office of SanDisk Corporation (which is a leading supplier of the data storage card products in India) were colluding with each other, thus compelling him to become the authorized dealer for SanDisk and trying to stop him from offering competitive prices which were much below than what was offered in the market.

CCI Order- The Commission held the relevant market in the present case as the market for portable small sized consumer storage devices such as USB pen drives, SD Memory Cards and Micro SD Cards in India.

Here CCI pointed out that both offline and online markets have different features like discounts offered, shopping experience and buyers have the option of weighing such terms offered in both markets and decide accordingly. In case there is a significant increase in the prices in the online market, then the consumer may choose to shift towards the offline market and vice versa.

Thus Commission took the view that these two markets namely offline and online are different channels of distribution of the same product and are in no way different relevant markets.The Commission on one hand held SanDisk as a market leader in the relevant market (CCI in its order dated 19 May 2014 noted that in terms of unit shipments in fourth quarter of 2014, SanDisk was a dominant player with 35% market share followed by Transcend and Kingston (other companies in the same segment) with 11% and 6% respectively).

However, the condition imposed by SanDisk that its products sold through the online portals must be bought from its authorised dealers only, cannot be categorised as an abusive conduct as it is within the scope of a company to protect the sanctity of its distributive channel. As far as Snapdeal.com was concerned, it is merely a web portal which enables the sellers and buyers to interact by providing a platform for the sellers to sell their products for a commission. Here it was also pointed out that the e-commerce market in India has a number of web portals like flipkart.com, Amazon, eBay, yebhi etc. which thrive on special discounts and deals. Hence no prima facie case was made out against Snapdeal.com or SanDisk for abuse of dominant position under section 4 of the Competition Act, 2002.

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This significant rise in e-commerce market in India has raised various competition law concerns relating to "Predatory Pricing" and entering into "exclusive supply agreements"

EXCLUSIVE SUPPLY AGREEMENT- Trends favour the e-market sector

It refers to an agreement which restricts purchaser to buy product only through a single available seller. For deciding whether an agreement is anti-competitive or not the first thing that is to be decided is relevant market. CCI has not divided retail market into online and offline retail market. Retail market as a whole is considered relevant market for deciding whether it has adverse effect on competition or not. Although exclusive supply agreement is considered as anti- competitive agreement, but what needs to be proved is that it is having adverse effect on competition.

In a leading case, M/s Mohit Manglani & Others Versus M/S Flipkart Pvt Ltd  recently four major online retail players of the Indian e-commerce industry, namely, Flipkart, Jasper Infotech, Xerion Retail, Amazon and Vector E-commerce were alleged to be indulging in exclusive supply and distribution agreement for sale of products.

Facts of the case- Chetan Bhagat’s novel Half girlfriend was exclusively launched on Flipkart which was alleged to be exclusive supply agrrement.

Claims- It had been urged that due to such practices, the consumer is left with no choice in regards to terms of purchase and price of the goods and services as the buyer/consumer can either accept the terms and conditions in totality of the e-portal or opt not to buy the product. It was alleged that each e-portal i.e., each of the OPs has 100% market share for the product in which it is exclusively dealing and therefore, leads to dominance. It is contended that the relevant market in such a case has to be defined in context of a particular product in question and the dominance is also seen accordingly.

Order of CCI- The CCI ordered that the exclusive marketing arrangements between e-portals and manufacturers/suppliers do not create any entry barriers in the market, as the manufacturers/suppliers are free to sell their products on their own websites as well as the physical market. Mobile phones, tablets, books, camera etc., are neither alleged nor seem to be trodden by monopoly or dominance. Further, it does not appear that because of these exclusive agreements any of the existing players in the retail market are getting adversely affected, rather with new e-portals entering into the market, competition seems to be growing.

This seems to be a very beneficial order for the e-tail market which gives a proper definition of relevant market. Although exclusive supply agreement needs to be channelized but healthy competition is also a factor that has been taken into consideration.  

In a similar factual scenario; Snapdeal instituted a complaint against a manufacturer which had placed restrictions on its dealers in dealing with e-tailers.

CCI took a different stand to a case which was involved in a similar factual scenario; Snapdeal instituted a complaint against a manufacturer which had placed restrictions on its dealers in dealing with e-tailers.

Snapdeal v. Kaff Appliances

Facts and claims- Snapdeal had alleged that Kaff Appliances, a leading brand of kitchen appliances imposed a blanket ban on providing after sales warranties to customers who buy products online channels who may not be considered as authorized sellers. Per Snapdeal, such a ban was imposed without any justification for the same. Snapdeal thus alleged that the seller‘s conduct resulted in a total deprivation of consumer choice in violation of section 3(4) (d) of the Act. Highlighting various factors under section 19(3) of the Act, Snapdeal alleged that the agreements entered into between the Kaff Appliances and its dealers/distributors had an appreciable adverse effect on competition.15This time, the Commission instead of permitting such practices as commercially prudent measures to check quality and protect its distribution channel, instead held that the act of Kaff Appliances in the nature of a unilateral policy involved coercion.

This coercive conduct coupled with the fact that a number of distributors actually implemented the unilateral policy of the supplier, in practice, amounted to a tacit acquiescence by the other party or parties. 16

the Kaff appliances decision represents a paradigm shift in CCI‘s approach towards policies of restriction towards online sale and distribution. Not only does CCI‘s approach differ from its previous order in Ashish Ahuja v. Snapdeal, but it also depicts a bolder stand in comparison to other jurisdictions.

Therefore, the Kaff appliances decision represents a paradigm shift in CCI‘s approach towards policies of restriction towards online sale and distribution. Not only does CCI‘s approach differ from its previous order in Ashish Ahuja v. Snapdeal, but it also depicts a bolder stand in comparison to other jurisdictions.

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PREDATORY PRICING

Predatory price means selling product which is below the cost to reduce competition or eliminate competition.  In recent times cases have been instituted before the CCI against players like Flipkart, Snapdeal, Amazon, Jabong and Myntra for indulging in predatory pricing. 

However, CCI has rejected such claims at a prima- facie level as none of these entities were found to be dominant in the retail market.  For a claim of predatory pricing to succeed against the e-tailers, they must be found to be dominant in the market space in which they are operating. However, since CCI in its previous orders have recognized that online market is only a distribution channel rather than a relevant market in itself, the dominance of any e-tailer is reduced to a miniscule. The assessment of dominance is linked to CCI‘s refusal to demarcate online market as a distinct market of goods/service transactions.

Abuse of dominant position must be established with respect to the relevant market-

A company will be in dominant positiononly when it has more than 50% market share which is not so in case of e-portals. The CCI has consistently held in cases that online and offline markets are merely distribution channels and not different markets. Any abuse of dominant position must be established in the overall relevant market. CCI also observed in Snapdeal case these e-portals are not engaged in the purchase or sale of products, rather it owns and manages a web portal that enables those sellers who purchase to sell such devices through its web portal for a commission. Therefore they cannot be held to be a dominant player in the market.

Ola case- Bangalore

This was a case where relevant market position was easier to etablish as the whole city of bangalore. When it comes to emerging markets like taxi aggregators compared to online retailers the market becomes the jurisdiction where they are operating, in this case the city of bangalore. For online retailers the CCI has found it harder to adjudicate on what is the relevant market to decide the existence of a dominant position and the abuse of such dominant position.

In, M/s Fast Track Call Cab Private Limited v. ANI Technologies, prima facie order was passed by CCI in respect of allegations raised against Ola for providing several incentives/ loyalty rebate offers, predatory discounts to it‘s customers. The Commission noted that the conduct of the Opposite Party especially with regard to offering huge discounts to its customers and incentives to the drivers at the cost of bearing losses appears to be a strategy designed to exclude other players out of the relevant market which also resulted in a loss of business to the Informant.

Issues with respect to Major Discounting

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Such volume and deep discounts offered by online players like Flipkart, Snapdeal, Amazon, Jabong and Myntra for indulging in predatory pricing (through major discounts), has gained the wrath of online traders as well as traditional traders alike, who complaint that their shops are being reduced to mere show-rooms where consumers visit the shops, inquire about product details, seek for specifications and utility of the product/service, but prefer to perform the actual sale/purchase of the product/services on the online platforms, which offer (anti) competitive cheaper prices.

Discounting is not abusive or monopolistic-

CCI in its previous orders have recognized that online market is only a distribution channel rather than a relevant market in itself, the dominance of any e-tailer is reduced to a miniscule. The assessment of dominance is linked to CCI‘s refusal to demarcate online market as a distinct market of goods/service transactions. In this case, the e-tailers raised the plea that online retail is a sub-set of the organized retail market and since the organized retail itself constitutes a miniscule portion, about 8% approximately of the total retail market in India, the share of online retail is extremely less

Revisiting the Snapdeal v Kaff Appliances Case

The main issue of contention amongst the parties was the discounted price at which the e-commerce portal was selling the Company’s kitchen appliances. The said discounted price was below the Market Operating Price which the company selling the appliances wanted its retailers to maintain (Here, the ecommerce portal was asked to maintain the Market Operating Price vide an e-mail which was placed on record before the CCI). The Informant web portal thus alleged that the company is imposing a price restriction and forcing its dealers to sale at a prescribed minimum price amounting to resale price maintenance arrangement contravening section 3(4)(e) of the Act.

The Commission was of the view that Kaff appliances held 28 percent share in the market of ‘supply and distribution of kitchen appliances in India’ and the agreement entered into with its dealers prima facie may have both adverse effect on competition in India and harm consumers ultimately. 

 

Considering the decisions taken by CCI so far in respect of e-commerce market, we can say that Commission aims at promoting healthy competition in market. Growth of e-commerce industry is beneficial for Indian Economy. Therefore, such anti-competitive issues don’t pave away the route for entry of new e-retailers. However, the concern is if this continues then these e-commerce companies like Flipkart, Amazon & Snapdeal will be dominating the market of India which will lead to monopolistic activities. This will undermine the purpose of competition law. Therefore, Competition Commission in India needs to take stringent measures in regulating such activities.