[Sanchit Varma is a 4th year BA.LL.B (Hons.) student at NALSAR University of Law, Hyderabad]
In a recent order, the Competition Commission of India (‘CCI’) imposed a 136 crore fine on Google Inc. for unfair business practices in India. The order was passed pursuant to complaints filed against Google in 2012, wherein it was alleged that the company was abusing its dominant position through practices which led to search bias and search manipulation. In this context, the approach adopted by the CCI in determining whether Google was in fact liable for the abuse of its dominant position represents a marked departure from how it has treated allegations of abuse of dominant position against online entities in the past. Accordingly, this post examines the shift in the CCI’s approach, particularly in terms of the determination of the ‘relevant market’ for the purpose of section 4 of the Competition Act, 2002 (‘Act’).
CCI’s Order Against Google
The primary allegations levelled against Google in the complaint was that it operated its search and advertising services AdWords in a discriminatory manner, causing harm to advertisers and consumers, and further that it had created an uneven playing field by favouring its own services and partners through manually manipulating its search results to the advantage of its vertical partners. Consequently, Google’s own sites would appear prominently in the search results, irrespective of whether they were the most popular or relevant sites in relation to the user’s search keywords. It was therefore averred by the informants that Google had abused its dominant market position in India, and thereby contravened the provisions of Section 4 of the Act.
For the purpose of determining whether Google had in fact abused its dominant position, the CCI delineated the relevant markets as the ‘Market for Online General Web Search Services in India’ and the ‘Market for Online Search Advertising Services in India’. In doing so, the CCI rejected Google’s contention that both online and offline segments of advertising should be included in the relevant market before proceeding to examine the informant’s claim under section 4. The decision was premised on the internet’s limited reach, which would make offline and online advertising largely incomparable. Further, it was of the opinion that online advertising is not substitutable for newspapers, radio or television for advertisers who seek to target areas or user groups with limited internet access. The CCI’s opinion was influenced by the fact that online advertising is relatively cheaper in comparison to traditional media, and moreover it affords the advertiser the ability to monitor the reach of its advertisements. Therefore, the substitutability of online advertising with offline advertising was determined on the basis of internet access, and the relative advantages offered by online advertising.
An Inconsistent Approach
The CCI has been confronted with the offline-online dichotomy in a handful of occasions prior to its decision in the Google case. In Ashish Ahuja v. Snapdeal.com, the CCI had to determine whether the e-commerce entity’s conduct amounted to a violation of section 4 of the Act. In this context, it observed that since consumers moved between offline and online markets based on fluctuations in prices and other factors, the two markets merely constitute different channels of distribution of the same product, and not two separate relevant markets for the purpose of section 4.
Subsequently, in 2015 the CCI was tasked with examining the validity of exclusive supply agreements on the touchstone of section 4 in Mohit Manglani v. Flipkart. While the opposite parties (‘OP’) in this case contended that the delineation of the relevant market in the case into online and offline segments would be antithetical to the understanding of these divisions as separate distribution channels, this point was not substantively addressed by the CCI since it observed that e-commerce companies cannot be characterized as ‘dominant’ entities in either case, i.e. whether the relevant market is the online market, or the market as a whole. Thereafter in Deepak Verma v. Clues Network Pvt. Ltd., a case that was initially entirely divorced from issues concerning competition law, the CCI relied on its decision in Ashish Ahuja to hold that online and offline markets are essentially different channels of distribution, and not separate relevant markets.
A cursory analysis of these decisions yields that the test adopted by the CCI for determining whether online and offline markets can be considered as separate relevant markets under section 4 is substitutability i.e. whether consumers are willing, and able, to move back and forth between the online and offline markets. However, the CCI’s application of the substitutability test in these instances differs markedly from how it was applied in the 2018 order against Google, wherein access to the internet was considered to be a pertinent factor in determining whether online advertising is substitutable for newspapers and other offline media in areas with limited internet access. The application of a similar threshold in the earlier cases would lead to dramatically different outcomes. For instance, if the question in Deepak Verma was whether online retail is substitutable for brick-and-mortar stores in areas with limited internet access, the answer would obviously be no, and consequently the characterization of online and offline markets as mere distribution channels, and not relevant markets for the purpose of section 4, would be an incorrect classification.
A principled objection to the CCI’s approach does not lie against the merits of the evolved test itself, but in the fact that the CCI has not provided a substantive reason for its departure from its earlier treatment of the online-offline dichotomy. It may be argued that the relevant market debate in the Google case and the e-commerce cases is not comparable, since the latter involved actual distribution channels of goods. Such an argument quickly loses traction in light of the CCI’s 2016 decision in Justickets v. Big Tree Entertainment, wherein the Commission rejected the OP’s contention that online retail of movie tickets is merely an alternative distribution channel, which cannot be considered as a separate relevant market. The CCI noted that online vending platforms are distinct from the consumer’s perspective in terms of their degree of comfort and additional convenience charges, and accordingly it was held that these factors militate against the substitutability of online platforms with offline ones.
The Justickets case reveals that the determination of a relevant market depends on a variety of factors, and not just the nature of the markets as a distribution channel for common goods. Accordingly, the added dimensions to the substitutability test employed in the Google and Justickets cases raises questions about the rather simplistic classification of online and offline markets as mere ‘distribution channels’ in the e-commerce cases, which did not consider the substitutability of these markets in terms of internet access, different pricing, comfort, and the ability to predict and monitor consumer behavior.
The process of establishing whether an entity has abused its dominant position under section 4 of the Act is a three staged process, beginning with the delineation of the relevant market, the examination of whether the entity enjoys a dominant position within the relevant market, and further whether such a position has been abused. It is worth noting that the outcome of such an enquiry rests on how the relevant market is initially defined, which would then provide the boundaries within which the dominance of the entity can be assessed. This is so, because for inquiring whether an enterprise does in fact enjoy a dominant position under section 4, due regard has to be given to the factors listed under section 19(4) of the Act, and these factors prescribe that the dominance of the entity is to be evaluated in relation to the size of the market, its competitors, the entity’s market share etc.
Therefore, in a situation where offline and online markets are considered as separate relevant markets, the question of whether an e-commerce entity is dominant in the online market, as opposed to both the online and offline markets, is likely to yield different answers. For instance, in Mohit Manglani it was pointed out that e-commerce entities account for less than 1% of the total retail in India, but an e-commerce entity may account for more than 50% of the online retail market. While market share is not the sole determinant of an entity’s dominant position, it is nevertheless a primary consideration, and one which would have a substantial bearing on the outcome of an abuse of dominant position case.
It is incumbent upon the CCI to adopt an approach that is consistent in the determination of the relevant market in such cases, by not being selective in considering differentiating factors between online and offline markets in certain cases over others. A selective approach in this regard has the potential of affecting the outcome of proceedings under section 4, and moreover, it would be inimical to the existence of a competitive e-commerce industry in India.
– Sanchit Varma