CCI’s E-commerce Report: A Cross-Jurisdictional Analysis

[Nidhisha Garg is a 4th-year B.A.LL.B (Hons.) student at the National Law Institute University Bhopal]

On 8 January, 2020, the Competition Commission of India (CCI) released its report on e-commerce. The report is a result of an e-commerce market study carried out by the CCI starting April 2019, as a response to complaints by the Confederation of All-India Traders (CAIT) and National Restaurants Association of India (NRAI) that e-commerce giants like Amazon, Flipkart and Swiggy, Zomato engaged in predatory pricing. The CCI surveyed e-commerce marketplaces primarily in three sectors, food, accommodations and lifestyle (grocery, electronics, mobile phones).

Salient Features of the Report

The primary competition related concerns highlighted by the report as follows:

1. Platform Neutrality: The e-commerce platforms reportedly do not treat all sellers at par. Every marketplace has certain preferred sellers, which may either be on the basis of commission paid, advertising, or the like.

2. Abuse of Dominance: The e-commerce platforms have access to consumer behavior-related data which may be exploited by the marketplace to its advantage. However, the draft e-commerce policy (February 2019) has provided a check on it by prohibiting inventory based models, that is marketplaces cannot sell on their platforms their own products in competition with the products of the sellers. However, the marketplaces still abuse their dominant position by imposing unfair contract terms on the sellers. Some of the abusive practices engaged in by these marketplace entities are:

(a) Preventing the seller from going offline after being listed,

(b) Making listing of the seller conditional on also providing delivery services,

(c) Demoting the seller in terms of search ranking if demands related to high commission or fees are not met with.

3. Deep Discounts: According to the sellers, it is the marketplace which controls the discounts, whereas as per the marketplace the sellers are independent to set their own prices. Since the e-commerce marketplace provides consumers with the opportunity to undertake a price comparison, control over prices and discounts is a significant control. Moreover, dynamic pricing is a feature unique to e-commerce and also an important strategy used by marketplaces to increase their consumer base.

4. Exclusive agreements: The marketplaces often compel the sellers to sell exclusively on their marketplaces. More novel forms of exclusive agreements include the agreement that a new model or a new product of the brand will first be exclusively launched on the marketplace. Moreover, even if there is no express exclusivity, the marketplace can also prevent the seller from selling at a lower price at any other platform, which in effect draws the customer exclusively to that marketplace where the seller has the lowest price.

Cross-Jurisdictional Analysis

Prior to the CCI, market surveys and research on impact of digital economies on competition have also been carried out by competition watchdogs of several other jurisdictions, and also by many international organisations including the UNCTAD and OECD. The European Commission has also released a report titled “Competition Policy for the Digital Era”. Some of the noteworthy steps taken by other jurisdictions to ensure continued compliance with competition laws are provided below.

Germany: In 2017, Germany was of the first countries to amend its Act Against Restraints on Competition (ARC) as a reaction to Facebook’s acquisition of WhatsApp. Most of the start-ups providing digital services do not meet the assets or the domestic turnover threshold set by most jurisdictions, and often fall outside the law mandating merger notification to the regulatory authority. However, Germany shifted to a transaction value threshold and global turnover instead of domestic turnover. In addition, the Federal Cartel Office was also vested with powers pertaining to consumer protection.

France: The National Digital Council in France introduced a new law which obliges e-commerce marketplaces to introduce fairness, transparency and clarity of information wherever they sought to differentiate between the sellers on the basis of factors otherwise than quality of service. This has also been emphasized upon by the CCI in its report. While focusing on self-regulation, the CCI has emphasized that marketplaces themselves come up with transparent policies, especially with respect to factors determining search ranking, discounting policy, use of user data and user review. It also mentioned that, before changing the terms of contract with the seller, due notice must first be given to the seller and there must be reasonable time before the revised terms are implemented. Considering that the Personal Data Protection Bill might also be passed in the near future, it is only incumbent that these marketplaces come up with transparent policies related to use of user’s personal data by them.

UK: The Competition Market Authority (CMA) also came out with the Furman Report titled “Unlocking Digital Competition” in March 2019, which suggested introduction of the “public interest test” in data driven mergers. This rationale may also be extended to India by the CCI. However, it must proceed cautiously, considering the “public interest” in the case of e-commerce marketplace involves the stakes of not just of the consumers but also that of the vendors who are hosted by the marketplace. The definition of “public” must be altered in that light.

USA: The USA has two bodies, the Federal Trade Commission (FTC) and the Department of Justice (DOJ). While the former oversees anti-trust violations by companies such as Facebook and Amazon, the DOJ keeps an eye on Apple and Google. In addition, the U.S.A also has separate sectoral regulatory authorities, whose jurisdiction may be either be concurrent with that of the FTC or DOJ, or be exclusive. However, whereas sectoral compartmentalization may provide for customized remedies suitable for that particular sector, it is not devoid of its disadvantages. To start with, it can promote lack of co-operation and, in some cases, the regulator may still have to rely on the advice of the competition authority. Therefore, certain other jurisdictions like Cambodia, New Zealand, Holland and Spain have also retained the single agency, single regulation stand. While this may provide the requisite expertise needed to regulate that particular sector, the sectoral authorities may not have the investigative and adjudicative powers to the extent the central competition agency.

Singapore: Even though Singapore has not yet brought about changes in its competition law to deal with challenges posed by the online marketplaces, the Competition and Consumer Commission of Singapore (CCCS) has played a pro-active role in the recent past, analyzing each transaction on a case-by-case basis and checking them by imposing deterrent fines in case it finds any competition law violation.

The CCI has also, in its report drawn attention to its investigative jurisdiction under section 3(4) of the Competition Act, 2002 to check the unfair contract terms imposed by the marketplaces on sellers by virtue of their dominant position. The CCI was careful enough to observe that exclusive agreements may be both pro-competitive and anti-competitive, and therefore no umbrella bar can be imposed on them. Instead, the CCI must adopt of rule of reason framework to analyse them on a case-by-case basis. Moreover, in cases where the enterprise holds a dominant position in the market, it can also intervene under section 4 of the Competition Act.

Conclusion

In response to emerging e-commerce marketplaces, various offline sellers have adopted home-deliveries and online payment options to maintain their consumer base. Some have also felt the need to go online and established their own website. However, they still face stiff competition from e-commerce marketplaces and the fact that such marketplaces engage in anti-competitive practices makes it all the more difficult for them to sustain their business. Hence, the CCI must have felt the need for such a study and the resultant recommendations.

A lot of the practices indulged in by such marketplaces may not be per se anti-competitive, that is, they may not within the express language of offences as defined by the Act. However, they may well have far-reaching anti-competitive implications, both in the short as well as the long run. A new law to tackle competition concerns of a digital economy must therefore be competent to deal with characteristics that are peculiar to the digital world. While setting up shop in the digital space may have high upfront establishment costs, they have low marginal and maintainability costs. This leads to entry barriers for new entrants. The biggest challenge for a new entrant will be to draw customers, which can only be done if the services it offers are substantially different from those already being provided by existing marketplaces since substitutability is not high in the digital world.  Also, the focus during initial years is on growth over profits, which can be seen from Amazon’s investors putting zero pressure on it to show profits during the initial years.

At the same time, the report of the CCI expressly states in its disclaimer that the suggestions made are merely its observations for the purpose of research and do not constitute a legal document and should not form the basis of proceedings, legal or otherwise. Therefore, the recommendations are yet not enforceable. However, the CCI and its investigative wing, the Director General (DG), do possess immense adjudicatory and investigative powers and the CCI must not shy away from exercising the same until the legislature takes cognizance of the matter and either amends the Act, or issues some regulations to ensure that transactions in the e-commerce sector promote healthy competition.

Nidhisha Garg

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