The proficient concept of collective dominance is still absent in the competition law despite its pressing need in a dynamic market like that of India. Time and again, the absence of the concept of ‘collective dominance’ in Indian competition regime has tied the hands of Competition Commission of India (“CCI”) from taking suitable actions when required. The concept of collective dominance was first recognized by the Court of First Instance in the case of the Italian Flat Glass. Collective dominance refers to an environment in which two or more independent undertakings, unified by economic links, jointly hold a superior position to the other operators on the relevant market while remaining independent undertakings. Collective dominance can be traced in vertical and horizontal markets. Therefore, the parties who are in a dominant position collectively need not be a part of an anti-competitive agreement or cartelization. This article emphasizes the need to recognize collective dominance in Indian competition law.
Recognition of Collective Dominance in EU Law
Article 102 of Treaty on the Functioning of the European Union (“TFEU”) applies to “any abuse by one or more undertakings of a dominant position” and is open to both narrow and wide interpretations. A narrow reading of Article 102 would suggest dominance of different legal entities within the same corporate group as was the case in Europemballage and Continental Can v. Commission and Commercial Solvents v. Commission. In these cases, a number of parties were found to form a single economic entity thereby holding a dominant position in the relevant market. On the other hand, a wider interpretation of the Article 102 would suggest that even legally and economically independent firms can be considered to hold a ‘collective dominant position’. Although this view was earlier rejected by Court of Justice in Hoffmann- La Roche v. Commission, it was later confirmed in Italian Flat Glass.
Status Quo in India
In the present Indian legal regime, Section 4 of the Competition Act, 2002 (“the Act”) prohibits abuse of dominance by enterprises holding a dominant position in a relevant market. Further, the term ‘dominant position’ is defined in explanation (a) to Section 4. It refers to a position of strength which enables an enterprise in the relevant market “to operate independently of competitive forces prevailing in the relevant market or affect its competitors or consumers or the relevant market in its favour.” Thus, according to Section 4, ‘dominant position’ can only be held by one single enterprise rather than a group of enterprises. This marks the absence of the concept of collective dominance in this Section, resultantly restricting the penalization of parties when there is a collective abuse of dominance.
There have been a number of instances where appropriate action against the abuse of collective dominance is denied because of this lacuna in the law. Recently, in Ashok Kumar Vallabhaneni v. Geetha SP Entertainment LLP, the CCI observed that the Act does not provide for this concept. According to the factual matrix, the defendants operating in Andhra Pradesh and Telangana conducted the business of movies production and distribution. The informant was denied of sufficient number of screens for his movie “Petta” by the defendant while other such movies were provided with more number of screens without giving any proper justification. The informant alleged cartelization amongst the defendants due to which he was not provided with sufficient number of screens for his movie. Additionally, he also contended that the conduct of defendants not only adversely affected the competition in the market, but also had an appreciable adverse effect on the consumers/viewers. This alleged conduct would be violative of Section 3(3)(b) of the Act which talks about anti-competitive agreements/practices that limits or controls production. He further claimed that the defendant aimed at monopolising the film industry to prevent new entries in the market; consequently, the informant suffered a huge loss. Thus, it was alleged that the defendant violated Section 4 of the Act by limiting or restricting the Telugu film industry.
The CCI concluded that “what the Act under Section 4 contemplates is the abuse of dominant position by an enterprise or a group rather than abuse of a dominant position of collective dominance by more than one entity.” It also stated that there was no evidence of cartelization in the given case and the concept of collective dominance is still not recognized by the Indian competition law so far. Hence, it was observed that there was no violation of Section 3 and Section 4 of the Act by the defendants.
In 2009, the CCI in Niraj Malhotra v. Deutsche Post Bank Home Finance rejected alleged abuse of dominance by some banks and non-banking financial companies in the practice of charging uniform penalties on prepayments of mortgage loans. Since none of the banks or financial companies ‘individually’ held dominant position, Section 4 was held to be irrelevant. This case once again pointed towards the need to recognize collective dominance in the Act.
In Sanjeev Rao v. Andhra Pradesh Hire Purchase Association, where abuse of dominance was alleged against AP Hire Purchase Association and its 162 members, the CCI failed to penalize the parties due to absence of the concept of collective dominance in the Act. It was alleged that members who occupied 60% of the market were charging high interest. However, since the Act does not recognize collective abuse of dominance, the parties were not penalized. In 2013, the CCI again failed to recognize collective dominance in Shri Sonam Sharma v. Apple, Vodafone and Airtel. The need of recognition of collective dominance was once again felt in the case of Meru-Ola-Uber, where Meru alleged abuse of dominance by Ola in the taxi market of Bengaluru. The CCI ruled that Ola could not be said to be dominant individually as Uber was also a significant player in the market and that the existing law does not recognize such collective dominance.
Impediments in the recognition of collective dominance in India
The Competition (Amendment) Bill, 2012 (“the Bill”) tried to broaden the ambit of Section 4. The Bill sought to address the cases where parties are collectively dominant in the market by including the words “jointly or singly” right after the words “or group” in Section 4(1) of the Act. Unfortunately, the Bill could not make its way to become an Act.
Regarding inclusion of the collective dominance in Indian competition law, the Competition Law Review Committee (“Committee”) put forward a baseless argument. It argued that the cases of collective dominance or joint dominance involve an anti-competitive agreement among the players. According to the Committee, there is no need to include the concept at this juncture and Section 3 of the Competition Act, 2002 is capable enough to deal with such cases. As seen in the cases mentioned in the previous section, Section 3 has not been sufficient to cover the cases involving collective dominance. The report is based on the statistics of the United Kingdom (“UK”); note that Indian law is based on the British common law system. However, in the UK, Section 60 of the Competition Act, 1998 mentions that there should exist consistency between EU and domestic jurisprudence. In Brannigan v. OFT, the informant was not able to prove collective dominance of the defendants in the relevant market but the Competition Appeal Tribunal (“CAT”) recognized the existence of the concept of collective dominance in the UK Competition regime.
One more attention catching argument was put forward by the Committee. The Committee argued that, although the concept of collective dominance is well-recognized in the EU and the Canadian Competition Tribunal, countries like the United States of America (“USA”) and Australia still do not recognize the concept. In the present scenario, we need to understand that the condition of Indian market is different from that of US and Australia. India’s Competition regime is still in its salad days. On the other hand, USA and Australia have a comparatively matured competition regime. US competition regime has multiple agencies and legislations to regulate competition in the market unlike India, which has a single agency deriving its power from a single legislation. It would be inappropriate to let go the opportunity of including a concept which is desperately required to maintain healthy competition.
Presently, as evidenced in several instances, the competition law in India has no provision to deal with collective dominance. It was expected that the concept would be found in Competition (Amendment) Bill, 2020 but no traces of the concept were visible in the Bill. The problem arises because the provisions of cartel and horizontal agreements stipulate that there is a requirement of written agreement between the players to constitute an anti-competitive agreement. This is the gap which needs to be filled with the advent of collective dominance. There are two feasible ways in which this concept can be assimilated in the Indian Competition regime, one way is to amend the explanation (a) to Section 4 from “dominant position means a position of strength, enjoyed by an enterprise…” to “dominant position means a position of strength, enjoyed by an enterprise or jointly by a number of enterprises…”. As suggested by the Competition (Amendment) Bill 2012, the other way to include this concept is to change Section 4 from “No enterprise or group shall abuse its dominant position” to “No enterprise or group “jointly or singly” shall abuse its dominant position”. Incorporating this concept in the Act becomes necessary in order to enable the CCI to take stern actions for preventing the abuse of collective dominance when sufficient evidence is present. The absence of recognition of collective dominance by the law hinders competition in the market and defeats the very purpose of the Competition Act, 2002, which is detrimental for a developing economy like that of India.
This article has been authored by Vatsla Shrivastava and Ritvik Maheshwari, students at National Law Institute University, Bhopal and National Law University, Odisha respectively.