Related to Disruptive Technology

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India’s Position and Status Quo

The Transformation of Competition Law in India Related to Disruptive Technology

History of Competition Law Policy in India

The concept of consumer welfare underpins competition rules. When evaluating suspected anti-competitive behavior, competition regulators should consider total consumer welfare and economic efficiency, according to the consumer welfare criterion.

Monopolies and Restrictive Trade Practices Act, 1969

The MRTP Act, 1969, was India's first attempt at competition law. The Monopolies Inquiry Commission recommended passing the MRTP Act, which became law. To combat monopolistic practices, the MRTP Act was passed. The Act was founded on the premise that increasing a company's size would have a negative impact on competition. The Sachar Committee was formed in 1978 to examine the MRTP Act and make recommendations for improvements. The committee proposed that measures relating to unfair business activities, such as deceptive advertising, be included to safeguard consumers who have previously been exposed to such tactics.

According to the MRTP Act of 1969, unfair trade practices, restrictive trade practices, and monopolistic trade practices were all outlawed. A restriction on the people or classes of people who can buy or sell products was covered, as was any arrangement that restricted or was likely to restrict them in any way.

Since the Indian economy was liberalized, privatized, and went global in the 1980s and 1990s, this was a critical time for India. The new economic policy decreased the government's influence and opened the door for multinational corporations (MNCs) to

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make investments in India. The MRTP Act was viewed as an impediment to private investment once the economic reforms were implemented.

Because of worldwide economic changes including competition laws, parts of the MRTP Act have become out-of-date. Rather than concentrating on breaking up monopolies, focus should instead have been to promote competition. According to the government's decision, the committee was set up to investigate these concerns and come up with a new competition legislation that would work in these circumstances.

In 1990, the Raghavan Committee was formed to study competition policy and law issues. The committee concluded that the MRTP Act was out of date considering India's recent economic reforms catering to liberalization and globalization. According to the Raghavan Committee, enacting new laws was preferable than modifying the current law. The Competition Act, 2002 was drafted and approved because of the suggestions made in the report.

Competition Act, 2002

The Competition Act was signed into law on January 13th, 2003, after receiving the President's approval. The MRTP Act was repealed under Section 55 of the Competition Act, and cases relating to it were transferred to the Competition Commission of India (CCI) because of this Act being established to replace it.

It was mandated to execute the Competition Act (Sec.7) and regulate competition in India by establishing the Competition Commission of India (CCI). On October 14, 2003, the government announced rules and procedures for selecting the chairman and other employees to constitute the first-ever Competition Commission of India (CCI).

A quasi-judicial organization established in accordance with the principles of rule of law under the Competition Act, 2002, the Competition Commission of India. The following are the Act's three most notable features: 1. Section 3: Anti-Competitive Agreements

2. Section 4: Abuse of Dominant Position 3. Sections 5 and 6: Combinations

Companies are prohibited by the Competition Act from engaging into arrangements that have the potential to significantly harm competition. Only the agreements listed under section 3(3) are forbidden under the act, which are as follows:

1. Fixing the price 2. restricting or regulating the market 3. Sharing of the market and manipulation of the bids

This competition appellate body, called The Competition Appellate Tribunal, was also formed (COMPAT). Following the Act's passage, many amendments were made to it.

Competition (Amendment) Act, 2007

Parliament passed the Competition (Amendment) Act, 2007 in September 2007 and the President of India gave his assent on September 24th, 2007. It was argued that the commission's legitimacy was questioned in Brahm Dutt v. Union of India (Supreme Court of India, 2005) before India's highest court, and the Indian government stated about modifications and the Act was significantly changed. The modification fundamentally altered the Competition Act's regulatory framework at the time.

Competition (Amendment) Act, 2009

The Act was revised once again in 2009, and on December 22, 2009, the Competition (Amendment) Act 2009 was signed into law by the President of India. The most significant change brought about by this modification was the transfer to the Competition Appellate Tribunal of all outstanding MRTC and Monopolies Act proceedings. Furthermore, under the Consumer (Protection) Act 1986, monopolistic and restrictive business practices were moved to the CCI, while unfair business practices were assigned to the National Commission.

How Indian Courts have approached Comparative Competition Law?

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As a result of Article 38 and 39 of the Indian Constitution, India's competition law is based on the idea that the state should strive to improve the well-being of its citizens while also making sure that a social request is met in the most effective way possible. This means that equity, social finances, and politics should inform every aspect of national life, and the state should specifically focus its strategy on ensuring:

• The group's tangible assets are spread so that they can best serve the interests of all members. • A monetary system that does not result in a concentrating of wealth and methods of production in the hands of those who would benefit from it.

The 'rule of reason' and the 'per se rule' are the two most important components of competition law. The Sherman Act of 1890 and the well-known case of Northern Pacific Railway Co. v United States and Others (US Supreme Court, 1958) had much impetus to make in. The case of Neeraj Malhotra v. Deustche Post Bank Home Finance ltd. and others (Supreme Court of India, 2011), commonly known as the payments loan case, shows the dimensions of 'Rule of Reason' and 'Per se Rule' in India.

Rule of Reason Effective use of this authority allows the Commission to implement procedures that are up to task while avoiding endless delays that are common with FTC and judicial decision-making processes. Two decisions of the Indian Supreme Court have laid forth the essential principles that the Competition Commission must follow. When the Supreme Court ruled in Rangi International Ltd. v. Nova Scotia Bank and Others, (Supreme Court of India, 2013) it said that the Commission had to give reasons for its decisions. Any legal system managed by an agency must meet this criterion to be effective. There must be a way for the courts, Prime Minister, Parliament, and the public to understand why the Commission took the actions it did.

Supreme Court of India said in Mahindra & Mahindra v. Union of India (Supreme Court of India, 1979) and TELCO v. Registration

Tribunal (Supreme Court of India, 1977) that in these instances, the rule of reason should be operative since the phrase "Restricted Trade Practices" is very wide and non-inclusive in nature. The Supreme Court of India stated in Sodhi Transport Company v. State of Uttar Pradesh (Supreme Court of India, 1986) further ruled that 'Shall be inferred' is considered as an assumption and not as evidence itself, but only characteristic on whom the burden of proof falls. Section 3(4) of the Competition Act outlines exercises that must be examined as part of the "rule of reason" examination under the Competition Act.

Rule per se It has been held in several court cases that the "per se rule" does not exist in India. However, Section 19 (3) of the Act disproves the provision of per se, which is accommodated by Section 3(3) of the Act. Although the per se norm is integrated into section 3(3) of the Act, the court ruled that its significance is diminished by its connection with section 19(3) of the Act, as was the case in Neeraj Malhotra v Deustche Post Bank Home Fund Limited (Deustche Bank) and Ors (Supreme Court of India, 2011). The indirect exception to this rule is provided by Section 19(3). Even though there were two judges who disagreed, the majority found no violation of Section 3(3) of the Act. Section 3(3) of the relevant Act, according to the learned opposing judge, establishes the norm of "per se".

Competence of the Current Competition Law Regime

The increasingly common term “Digital Economy” is used to denote a metaphorical umbrella which basically envelopes all markets utilizing digital technologies in their operations. Key features of digital platforms include the provision of a wide range of markets, social networking sites, search engines, and payment systems (Dessemond, 2019). Digital markets, in various ways, differ from traditional/linear business models. In case of transaction platforms, firms are able to utilize price leverages on both sides of the market that they operate on, in comparison to players who operate on one-sided markets and are constrained by a unidirectional structure of price. In addition to lower costs (both fixed and variable), platforms potentially can reach out to a

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large number of customers in a comparatively shorter frame of time (Russo, et al., 2016). Platform markets are also often referred to as ‘multi-sided markets’. In simpler words, multi-sided markets are the ones where firms act as platforms while selling different products/services to customers, and where the demand from one group of customers is reliant upon the demand from another (Singh, et al., 2020). In the case of traditional markets,

suppliers face the need for coordination with buyers, whereas in the case of multi-sided markets, coordination is in fact, achieved through a platform itself and through the

sharing of data (Kaushik, 2019). Such markets therefore generate what economists refer to as “reciprocal positive externality between two distinct groups'' (Bhattarcharjea, 2018 p. 218). However, multi-sided markets are not confined within the binds of digital platforms alone. Through the application of the same rationale, newspapers and credit card markets can be understood to be “offline” multi-sided markets as well (Wismer, et al., 2017). In India, one of the first cases relating to two-sided markets was the MCX - NSE case (Competition Commission of India), wherein the CCI elaborated upon the concept of Network - Effects. The CCI in fact, laid down an observation that network industries vary from traditional markets as they operate upon network effects, which means that the value of a platform may increase with increase in the number of users. Further, costs and prices in network platforms might not conform to trajectories akin to traditional markets, thus such industries cannot under all circumstances, be analysed utilizing traditional economic tools like normal supply-demand curves leading towards the determination of prices in the market. Since multi-sided markets actually involve distinct consumer groups, market definitions end up becoming more complex in such markets. Oftentimes, the competition authorities discover it to be challenging to attempt the demarcation of such markets as most competition laws have been drafted bearing in mind the traditional “one-sided” market logic, instead of emergent “two-sided”. Three primary areas that need regulation & oversight at all levels are Market Definition, Predatory Pricing & Dominance. The three areas are not only concerning in the Indo-Pacific but globally.

The concept of Relevant Market is a very important one in

Competition Law that needs to be understood. The relevant market is the filter that demarcates the commercial area confined to the boundaries of which a firm’s behaviour is. When describing relevant markets as an economic concept applied in competition enforcement by authorities, it is imperative that it be borne in mind that the term needs to be interpreted through the lens of law, in order to do away with legal ambiguities.

Section 2(r) of the Competition Act, 2002 states that “relevant market means the market which may be determined by the Commission with reference to the relevant product market or the relevant geographic market or with reference to both the markets”.

The defining of the relevant product or the relevant geographic market happens to be the first step in figuring out dominance. Section 19 (6) and Section 19 (7) of the Competition Act, 2002 lay down the parameters of defining the relevant geographic and product markets, respectively. Much alike competition law legislations across the globe, the Competition Act, 2002 as well lays emphasis upon “substitutability” as a test for discerning the relevant market. An important tool for determination of substitutability is the “Small but Significant, Non-Transitory Increase in Price” test or the SSNIP test. In layman’s terms, SSNIP evaluates whether, for a small, yet significant price surge (of about 5% to 10%), the consumers of a specific product would shift their choices to another product or not. If the transition occurs, the two products can be considered to be part of the same market. This test is also referred to as the “Hypothetical Monopolist” test - revealing whether a relevant market is worth monopolizing over (Raychaudhuri, 2019). Irrespective of the amounts or efficiency of the tests available, inaccuracy in demarcation of the relevant market is one of the most commonplace mistakes made in competition analyses. The tumultuous discerning of accurate determination of the relevant market increases manifold complexity when it comes to digital markets. For example, Amazon has a dual role as a market & an online retailer, whereas its own products compete with other merchants utilizing the same marketplace. How are the relevant

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market(s) to be determined in such a case is a complex problem. A further problematic aspect of two-sided markets is that there exist varying groups of consumers on either sided with interdependent demand, thereby making the application of an SSNIP test difficult, while considering the profits in one or both the sides of the market, & assessing the side on which the hypothetical monopolist would raise its price.

Dominance - U/s. 4 of the Competition Act, 2002 ‘dominant position’ is defined as “Position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to (i) operate independently of competitive forces prevailing in the relevant market; or (ii) affect its competitors or consumers or the relevant market in its favour.” While, Section 4(1) provides that “No enterprise or group shall abuse its dominant position.” & Section 4(2) provides that “There shall be an abuse of dominant position under subsection (1), if an enterprise or a group (a) directly or indirectly, imposes unfair or discriminatory (i) condition in purchase or sale of goods or service; or (ii) price in purchase or sale (including predatory price) of goods or service.” In matters concerning the abuse of dominance the key focus of the competition authorities is to ensure that the application of the law does not curb the efficiency. Firms might gain market power through efficient production or distribution methods, technological & other innovations & better entrepreneurial efforts. Therefore, it is not dominance per se which is frowned upon, but the abuse of dominance, through forms of conduct specified in the aforementioned statute. The legal requisites for determination of dominance vary from country to country. Some jurisdictions infer prima facie dominance through large market shares, whereas some countries do not stipulate market share thresholds. In the Indian sub context, Section 19(4) of the aforementioned Statute lists down factors which can effectively be considered by the CCI while determining dominance,

including market shares, size & resources of the enterprise, size of competitors, dependence of consumers on the enterprise, etc. Although market shares are an important indicator of dominance, the law in India fails to stipulate market share thresholds. The CCI can in fact, take into account all or any of the factors laid down in the aforementioned provision & cases often reveal that it is a range of factors which are assessed or need to be assessed.

Predatory Pricing - In simple terms, predatory pricing would refer to below-cost pricing with the intent of driving competitors out of the market - the thought process being that once the competition is eliminated, the predator can go on to monopolize the market & recoup the losses suffered during the period of the predation. Such cases can be traced back to the early 1900s. In the Brooke Group case, the US SC laid down a two-pronged test for predation. The first step for prices to be regarded as predatory, the prices should be below “an appropriate measure of costs” (Average Variable Cost as per the Areeda-Turner Test) & Secondly, there should actually exist a “dangerous probability, of recouping the investment in below-cost prices” (the recoupment test). In Europe, the first landmark case of predatory pricing was AKZO V. Commission, where the commission did not conform strictly to the Areeda Turner test. In this particular case, the Commission held that a price would be considered predatory when it is below AVC price or it is above AVC but there is an underlying intent to eliminate rivals (predatory intent) subject to being proved through documentary as well as circumstantial evidence. The recoupment of losses does not happen to be an essential criterion in Europe. The same was reiterated again in the Wanadoo case, where the Court decided that –

“Demonstrating that it is possible to recoup losses is not a necessary precondition for a finding of a predatory pricing”.

In India, Section 4(b) of the Competition Act, 2002 defines predatory price as “a price, which is below the cost, as may be determined by regulations, of production of the goods of provision of

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services, with a view to reduce competition or eliminate the competition”. The concepts of costs are further elaborated in the Determination of Cost of Production Regulations, 2009 adopted by the CCI. As per this particular regulation, cost can generally be understood as

“AVC as a proxy for marginal cost”. However, the Commission may “Depending on the nature of the industry, market and technology used, consider any other relevant cost concepts such as avoidable cost, long run average incremental cost, market value”. Therefore, in India the AVC is used as the accepted measure of cost, barring exceptional cases. Although the Indian Law does not use the term recoupment & the CCI technically is not required to prove the same, cases decided by the CCI have considered the concept. The CCI has in fact, identified three conditions for predation. 1. That the prices of the goods or the services are below the cost of production, 2. This low price is charged with the “object of driving competitors from the market”; & 3. There is significant planning to “recover the losses if any after the market rises again and the competitors have already been forced out.”

The Mystery of Assessment of Dominance & Abuse in Platform Markets - The Cab Aggregator Disputes On 3rd September, 2019, the Indian SC reopened an investigation into the Uber matter through the dismissal of an appeal filed by Uber against the order of the Competition Appellate Tribunal (COMPAT). Since 2015, the Commission has taken into account numerous allegations against Uber & Ola whose businesses are based on the aggregator model. This model is an example of a two-sided platform as well, which benefits two or more parties. The companies do not own the vehicles but use the internet & a smartphone-based application in order to connect drivers with customers seeking cabs. Out of the fare paid by the passenger, the company retains a percentage & the rest is retained by the driver. Cases filed against these companies have