Abuse of Dominance in Digital Market: Analysis of Price and Non-Price Indicators vis-à-vis Dominance
‘Abuse of Dominant Position’ in the Act has been enunciated in S. 4. The steps involved in the analysis, whenever there are allegations of in the S. 4 violations are-
Step 1: What is the relevant market? [S. 19(6) and S. 19(7) r/w S. 2(s) and 2(t) of the Act.]
Step 2: What is the position of the player in the market i.e. whether the player in the relevant market is in a dominant position or not [S.19(4)]?
Step 3: Whether the player has abused its dominance in the relevant market?
The CCI used to have a hands-off approach in the digital market but there has been a monumental shift in the past few years. Earlier, the CCI used to be deferential towards the policies introduced by the players in the digital market but now it has started taking proactive scrutiny against them. The proactive steps of the CCI was evident in this case. It found a prima facie violation of S. 4 (2) (a) (1), (c), (e) and ordered an investigation by the Director General (DG) under S. 26 (1) of the Act. To reach this conclusion, the CCI relied on two cases: Vinod Kumar Gupta v WhatsApp Inc (Case No. 99 of 2016) and Harshita Chawla v WhatsApp Inc and Ors (Case No. 15 of 2020).
I will argue in my blog posts that the CCI’s reasoning on defining the relevant market and using the prima facie standard, which is solely based on the Harshita Chawla case, is incorrect. This is because there is now a need to consider data privacy breaches as a form of abuse of dominance, in addition to pricing factors. Although the CCI’s conclusion may have been correct, their reasoning needs to be updated to reflect this new understanding. It ought to have considered a nuanced understanding of the concept of ‘Relevant Product Market’ which in turn would have helped in defining the relevant market accurately and the analysis on abuse of dominance would have been better.
Understanding The Prima Facie Conundrum
Prima facie literally means based on first impression. The standard of Prima facie varies from section to section in the Act. The SC in the case of CCI v. SAIL (2010) 10 SCC 744, contrasted the prima facie standard in S.26 (1) to the prima facie standard in S.33. According to the apex court, S. 26 is a demurrer standard, which means that assuming all the allegations were true, would that then be a violation of the Act. Furthermore, there has to be some reason that has to be given for the formation of the prima facie view.
In the case of Reprographics India v CCI and Ors (Competition Appeal (AT) No. 09 of 2019) it was highlighted that there should be ‘substance in the allegations’ and ‘not mere bald accusations without evidence’ to warrant an investigation under S. 26(1). Though the standard is not consistent and the CCI in the case of Mr. Umar Javeed and Ors. v Google LLC and Ors (Case No. 39 of 2018). shifted the burden on the opposite party (i.e. Google) to show that there was no prima facie case. I will argue that if the analysis by the CCI had been proper, the prima facie standard laid down in these precedents would not have been fulfilled.
Analysing ‘Relevant Market’ And Its Impact On The ‘Dominant Position’
Firstly, where does the data as a non-price indicator feature in the study of S. 4?
S.19 (4) (b) refers to the ‘resource of the enterprise’ as a relevant factor. The recent report of Competition Law Review Committee (pg 150, CLRC) noted that it would include both the crucial aspect of the Whatsapp case: data mining as well as network effect within its ambit of relevant factors.
Before analysing ‘abuse of dominant position’, there is a duty cast upon the CCI to define the relevant market of S. 4 properly. Delineating the ‘Relevant Market’ is necessary to identify in a systematic manner, the competitors and the effect of abuse. Most of the time CCI errs in defining the market and on that ground, the order has to be overturned in an appellate body. The relevant market has two components: ‘relevant geographic market’ (RGM) and ‘relevant product market’ (RPM). As long as the CCI gives due consideration to RPM as well as RGM [S.19(5)], the prima facie analysis could be carried out in an efficient manner. In this case, it is clear that Whatsapp operates at the Pan India level and the RGM ought to be India.
But defining RGM is a good work but half done. There are other steps in the analysis and the CCI erred in its decision because of the errors committed in these steps.
Firstly, the CCI did not properly consider RPM for Whatsapp in this case. For RPM, there should be an ‘interchangeable or substitutability’ test from the perspective of the consumers, as enunciated in S. 2 (t) of the act. It is complemented with factors mentioned in S. 19 (7) and other factors laid down in the catena of cases. But the CCI did not consider any of these factors and they copied the judgment of the Harshita Chawla case and labeled RPM as ‘‘market for Over-The-Top (OTT) messaging apps through smartphones in India.”
Secondly, ‘Substitutability’ is a test for defining RPM. It would mean that the product can be substituted by another similar product if the consumer wants to, based on some externalities. In the case of Re Picasso Animation Pvt Ltd (PAPL) and Picasso Digital Media Pvt Ltd (PDMPL) (Case No. 75 of 2016 [CCI]), it was held that if there are similar characteristics of two products and the consumer has a choice to substitute them, they would be considered as substitutes. Even considering that CCI was correct in considering the entirety of Whatsapp, applying the substitutability test, it should be noted that WhatsApp’s total downloads decreased by 35% immediately after the new update was announced in India. According to a survey, 36% of the users were thinking of switching to apps like Signal and uninstalling Whatsapp after the announcement of the update. Between January 2nd to January 6th, Signal was downloaded 2.3 million times as compared to 24000 downloads overall till date. Thus, Whatsapp, contrary to the popular belief that it is unsubstitutable given the strong network effect, is prone to change in the consumer base. The CCI also forgot that as compared to 2016, in 2021, users have started using the web version on a significant scale. Hence the pasting of the ‘through smartphones’ bit of the 2016 decision in this case is also problematic.
Analysis Of CCI On Dominant Position And The Error On Its Part
Moving forward, ‘dominant position’ in the Act is defined as a “position of strength, enjoyed by an enterprise, in the relevant market, 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 favor” [S. 4 Explanation (a)]. This definition is supplemented by factors mentioned in S. 19 (4) and other factors for digital market dominance as explained in the COMPAT (‘Company Appellate Tribunal’) decision of Meru v OLA/Uber drivers (Case No. 96 of 2015) According to the COMPAT, apart from market shares, dominance in the digital market is also inferred from the strong network effect. The comprehensive test for dominance was laid down in Belaire Owners’ Association v. DLF limited, HUDA and others (Case No. 19 of 2010). The test of dominance laid down by the CCI in this case was that a company is considered dominant if it has a position of strength in the relevant market, which enables it to operate independently of competitive forces and to affect its competitors, customers and the market as a whole in its favor. The CCI also found that DLF Limited had used its dominant position to impose unfair conditions on apartment buyers and to limit competition in the market.
In totality, a player is abusing its position of dominance in market if it:
Is dominant in the relevant market- RPM and RGM both. For determining RPM, substitutability test is used and to determine RGM, area of usage of the product must be seen. The CCI often looks at the available data, position of strength in the market, market share etc, to ascertain the relevant market.
The abuse of dominance is inferred from the power of imposing unilateral and unfair conditions on the consumers.
On top of it, S. 19 (4) (c),(d) (l) stipulates a competitor for gauzing the dominant position in the market. In India, this exercise is extremely difficult because no other platform provides for a business account and this was an innovation introduced by Whatsapp. Hence, the first movers’ advantage is yet to be seen.
This argument can go either way. Because there is no competitor in the business accounts market and because the RPM is defined wrongly, the CCI could not have termed Whatsapp as a dominant player in the OTT messaging market. The total number of business account users in India is miniscule as compared to regular Whatsapp users. On the flip side, defining RPM as a ‘market for business accounts’ and then considering Whatsapp as the only player would have made it the dominant because it would have total market shares and first movers advantage as well. But as I mentioned earlier, this paper is outcome agnostic and it would have been better if the CCI had done the second type of analysis. This is so because procedural and substantive errors in the judgments could give rise to appeals and another round of litigation, even if the outcome was correct in the first place. This would lead to unnecessary wastage of resources.
It can be safely concluded that the CCI erred in the analysis of relevant market and hence missed its aim in making out a prima facie case. The demurrer standard mentioned initially mandates that in a counter-factual scenario, would the case be a violation. In this case, I do not think such an analysis could even be carried out because of the lack of depth of analysis done by the CCI.
This article has been authored by Satyarth Kumar Srivastava, a fourth-year student at the National Law School of India University, Bengaluru. This blog is part of the RSRR’s Rolling Blog Series. This blog is also the first in a series of two posts. The second post can be found here.