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Indian Anti-Trust Law
Abuse of Dominant Position

Definition, Determination and Deterrence under Competition Act, 2002

Harshita Sharma
Harshita Sharma

Published on: Jul 18, 2023

Aakanksha Singhal
Aakanksha Singhal

Updated on: Mar 29, 2024

(30 Ratings)
22197

Introduction:

Dominant Position refers to a position when something or someone is in a superior position as compared to others contingent on certain factors. In terms of Section 4 of the Competition Act, 2002, Dominant Position means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to:

  1. Work independent of any competitive forces prevailing in the relevant market or
  2. influence its competitors or consumers or the relevant market in its favor.

Prior to the Competition (Amendment) Act, 2007, the provisions of Section 4 were applicable only on enterprises but after the said amendment, the provisions also became applicable on a group of endeavors. Now, every enterprise or group is abstained from abusing its dominant position, in terms of the provisions of the Competition Act, 2002.

However, vital point to be contemplated here is that the provisions of the Competition Act, 2002, does not prohibit or implies that domination is illegal but the abuse of such dominant position in an exclusionary or in an exploitative manner is restricted.

Key Terminologies

In terms of Section 2(f) of the Act, Consumer means any person who:

  • buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment when such use is made with the approval of such person, whether such purchase of goods is for resale or for any commercial purpose or for personal use
  • hires or avails of any services for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first-mentioned person whether such hiring or availing of services is for any commercial purpose or for personal use.

In terms of Section 2(h) of the Act Enterprise means a person or a department of the Government, including units, divisions, subsidiaries, who or which is, or has been, engaged in any economic activity, relating to the production, storage, supply, distribution, acquisition or control of articles or goods, or the provision of services, of any kind, or in investment, or in the business of acquiring, holding, underwriting or dealing with shares, debentures or other securities of any other body corporate, either directly or through one or more of its units or divisions or subsidiaries, but does not include any activity of the Government relatable to the sovereign functions of the Government including all activities carried on by the departments of the Central Government dealing with atomic energy, currency, defense and space.

In terms of Section 2(i) of the Act, 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.

In terms of clause (b) of the explanation to Section 5 of the Act, Group means two or more enterprises where one enterprise is, directly or indirectly, are in a position to:

  • exercise 26% or more of the voting rights in the other enterprise or
  • appoint more than 50% of the members of the board of directors in the other enterprise or
  • control the management or affairs of the other enterprise.

Section 4 of the Act provides that there shall be an abuse of dominant position, where an enterprise or a group:

  1. directly or indirectly, imposes unfair or discriminatory:
    • condition in purchase or sale of goods or service or
    • price in purchase or sale (including predatory price) of goods or service
  2. limits or restricts:
    • production of goods or provision of services or market therefore or
    • technical or scientific development relating to goods or services to the prejudice of consumers or
  3. indulges in practice or practices resulting in denial of market access in any manner or
  4. makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts or
  5. uses its dominant position in one relevant market to enter into, or protect, other relevant market.

In terms of clause (b) of the explanation to Section 4 of the Act, predatory price means 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.

Determination of Abuse of Dominant Position:

Step 1: Determination of the Relevant Market

Step 2: Determine the Dominance in the Relevant Market

Step 3: Determine Abuse in the Dominant Position

Step 1: The first step is to determine the relevant market in which there has been instances of such abuse by any enterprise or group enjoying dominant position in such relevant market. The relevant markets are further subdivided into two segments as under:

Relevant Product Market

Section 2(t) defines Relevant Product Market as the market comprising of all those products and services which are considered as inter-changeable or substitutable by the consumer, by reason of characteristics of such products or services or their production or supply are regarded as interchangeable or substitutable by the supplier by reason of ease of switching the production.

Factors determining the product market are price of commodities, physical characteristics or end use of goods, existance of specialised producers, end use of the goods, consumer preferance and exclusion of in-house producers.

Relevant Geographical Market

Section 2(s) defines Relevant Geographical Market as the market compromising the area in which the conditions of competiton for supply of goods or provision of services or demand of goods or services are distinctly homogenous and can be distinguished from the conditions prevailing in the neighbouring areas.

Factors determing the relvant geographical market are transport cost, consumer preferance, local requirements, adequete distribution facilities, language, nationl procurment policies, need for secure supply and adequate distribution facilites.

Step 2: The next step is to determine whether the enterprise enjoys the domination in the relevant market. The Competition Commission of India (CCI), the regulatory body for the purposes of governing fair competitive practices in the country, shall give due regards to the below-mentioned factors, while enquiring whether an enterprise enjoys a dominant position or not in terms of the Competition Act, 2002:

  • market share, size and resources of the enterprise
  • size and importance of the competitors
  • economic power of such enterprises including commercial advantages, if any enjoyed over competitors
  • vertical integration of the enterprises or sale or service network of such enterprises
  • dependence of consumers on the enterprise
  • any monopoly or dominant position which has been acquired as a result of any statute or by virtue of being a Government Company or a Public Sector Undertaking or otherwise
  • entry barriers, if any such as regulatory barriers or barriers of financial risk, high capital cost of entry, marketing entry, technical entry, economies of scale, high cost of substitutable goods or service for consumers, etc.
  • countervailing buying power
  • market structure and size of market
  • social obligations and social costs
  • relative advantage, if any to the enterprise who is enjoying a dominant position which is having or can have appreciable adverse effect on competition
  • any other aspect which in view of the Commission would be relevant for the inquiry.

Step 3: The last step is to determine if the enterprise is abusing its dominant position before getting into how to determine we first need to know the type of Abuses. There is an abuse of dominant position by any enterprise or group in the following scenarios:

  • direct or indirect imposition of unfair or discriminatory conditions or prices pertaining to purchase or sale of goods or services
  • limiting or restricting the production of goods or provision of services or market or any technical or scientific development relating to such goods or services to the prejudice of consumers
  • indulging in such practices that result in denial of market access in any manner
  • conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contract
  • using the dominant position in one relevant market to enter into, or protect, other relevant market.

Categories of Abuses under Competition Act, 2002

Exploitative Practices

  • Exploitative Practices refers to taking unfair or unethical advantage of a person, group, or situation for the purpose of profit, comfort, or advancement. The goal of the enterprises involved in such practices is to exploit the customers. The most common example of such exploitative practice is excessive or discriminatory pricing.
  • In one of the landmark case of Pankaj Aagarwal vs DLF Gurgaon Home Developer Private Limited, it was held by the Commission that the terms and conditions which are only in the favor of the enterprise would be considered as one sided in the buyer’s agreement and also abusive. Such clauses shall be treated as exploitative in nature for the purchaser.

Exclusionary Practices

  • Exclusionary practices are contracts, pricing strategies and such other practices or general actions taken by dominant firms to dampen new competitors from entering an industry or relevant market or compelling the rivals to exit, or restricting them to market niches, or preventing them from expanding, and such other practices ultimately cause harm to the customers. The most common examples of such exclusionary practice is denial of market access or indulging in predatory pricing.
  • In one of the landmark case of Google INC. & ORS. vs Competition Commission of India (2015), it was held by the Commission that Google perpetuated its dominant position in the online search market, which had resulted in denial of market access for competing search apps.

Essential Facility Doctrine:

The essential facility doctrine is a legal concept used in competition law that refers to a situation where a facility or infrastructure is deemed essential for other businesses to compete in a particular market. Under the doctrine, any enterprise or group that has control over an essential facility, such as a port, or railway, or communication network, shall abstain from denying access to its competitors or indulge in charging exorbitant prices for such access from its competitors. The reason behind this restrainment is that the denial for access to the facility which is deemed necessary for competition to take place in the relevant market, would result in an unfair advantage to such dominant firm.

In India, the essential facility doctrine is recognized under Section 4(2)(c) of the Competition Act, 2002, which prohibits any abuse of dominance by a dominant firm in a relevant market, including the denial of access to an essential facility.

The Competition Commission of India (CCI) has the authority to investigate and take action against any firm that violates the essential facility doctrine. The Commission may order the dominant firm to provide access to the facility on reasonable terms or impose such other remedies, such as fines or divestiture of the facility as it considers necessary to eradicate the instances of any abuses.

Overall, the essential facility doctrine is an important tool in promoting competition and preventing anti-competitive behavior in India’s markets.

Recourses Against Abuse of Position of Dominance

The Competition Commission of India (CCI) if is satisfied that an act in contravention of sub-section (1) of section 3 or sub-section (1) of section 4 or section 6 of the Act, has been committed and continues to be committed or that such act is about to be committed, then the Commission may:

  1. Issue restraining order
  2. Direct the division of the enterprises enjoying dominant position so as to abstain the continuity of such dominance
  3. direct any enterprise or association of enterprises or person or association of persons, as the case may be, involved in abuse of dominant position, to discontinue such abuse of dominant position, as the case may be
  4. Impose penalty as it may deem fit but not more than 10% of the average of the turnover or income, as the case may be, for the last three preceding financial years, upon each of such person or enterprise which is abusing its dominant position
  5. Give any orders as it may deem fit.

Conclusion:

The Competition Law clearly states that dominant position is not void but abuse of such domination is. The increased use of abuse of dominant position in the relevant market, has necessitated the implementation of statutory laws relating to the Competition Act so as to have a proper functioning of independent business and to have an economic outlook without any dismay of dominant position. Further, section 4 of the Act is a substantive provision and prohibits the abuse of dominance position, but the burden of proof lies on the Commission to proof the existence of such dominance and abuse of it.

It can be concluded that competition should be endured as long as it is healthy and as long as it benefits the society at large to grow.

Disclaimer

The information provided in this article is intended for general informational purposes only and should not be construed as legal advice. The content of this article is not intended to create and receipt of it does not constitute any relationship. Readers should not act upon this information without seeking professional legal counsel.

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