Amazon and Flipkart found violating Competition law in India-DG investigation report out
So, is it the beginning of the end of the Amazon (and Flipkart’s) combined market dominance or, at least, their allegedly vertical anti-competitive arrangements in the online sales of Smart mobile phones in India??
Considering the recent media news Karnataka High Court dismisses petitions by Amazon, Flipkart against CCI probe on competition law violationsat least it may seem to be a distant possibility . The Karnataka High Court has finally dismissed the Amazon’s Writ Petition ( No. 3363/2020) as well as that of FlipKart’ s Writ Petition ( No. 4334/2020) vide its judgment dated 11 June 2021.
This must have come as a shock to both the online platforms (or resellers??) as readers may recall that initially they had won the first battle against the CCI order directing investigation when they obtained a stay order in February 2020 against the CCI Prima facie order .
Going by the initial observations of the Court it appeared that the Court may indeed stop this probe since the High Court , while staying the initial probe , had acknowledged that investigation under the provision of the FEMA Act, 1999 is in progress against Amazon and Flipkart and in view of the penal provision under the FEMA Act, 1999 and that in view of the undertaking given by Union of India , the ratio decidendi laid down by the Hon’ble Supreme Court in Bharti Airtel Limited v Competition Commission of India applies to this case. Readers may recall my blog on the said judgment in the Bharti Airtel Case wherein the Supreme Court while dismissing the CCI and Reliance-Jio’s Appeals had upheld the jurisdiction of TRAI to decide upon technical issue pending between Bharti Airtel and Vodafone -idea. However, the High Court’s views changed completely after final hearings all sides on merits and keeping with the past precedents on judicial interventions in Antitrust probes, it dismissed both writ petitions on 11 June 21.
Let us recapitulate the facts. Delhi Vyapar Mahasangh (DVM) – a group representing small and medium sized business affiliated to the Confederation of All -India Traders (CAIT) – approached the CCI alleging business malpractices by Amazon and Flipkart such as (i) preferential treatment to sellers affiliated with it or controlled by it, (ii) predatory pricing through deep discounting and (iii) exclusive arrangements with mobile phone brands for exclusive launches of new models of Smartphones. CCI, after forming a prima facie opinion that the practices of Amazon and Flipkart may amount to vertical anti-competitive agreements in contravention of Section 3(4) of the Act (CCI rejected the allegation of collective abuse of dominance by Amazon and Flipkart since the concept does not exist under the Indian Competition Act,2002-(the Act) directed investigation by the DG vide its above order dated 13.1.2020. Amazon, by way of Writ Petition, challenged this order before the High Court.
In the final hearings, Amazon was led by Mr Gopal Subramaniam, Senior Advocate (former ASG) and FlipKart was led by Mr. Udaya Holla and Mr Dhayan Chinappa, Senior Advocates while CCI was represented by Ms Madhavi Dewan, ASG and DVM and CAIT were represented by Mr S Gautamaditya and Mr. Abir Roy, Advocates.
The High Court framed following three issues for adjudication:
- What is the nature of the impugned order passed under section 26(1) of the Act?
- Whether a prior notice and opportunity of hearing is mandatory before passing directions for investigation under section 26(1) of the Act?
- Whether impugned order calls for interference?
Gist of arguments by Amazon– Amazon repeated many of its initial arguments and also argued forcefully against the (i) “non application of mind” by the CCI , (ii) lack of understanding on how the online platforms like Amazon actually promote competition and (iii) omission to consider the “jurisdictional facts” such as absence of agreement between enterprise related vertically and whether such agreements cause appreciable adverse effect on competition (AAEC) in India in terms of Section 3(4) of the Act , (iv) lack of bona fides by the Respondent DVM acting on behalf on CAIT and allegedly approaching the CCI with “unclean hands” such as having previously filed writ petitions without getting any relief against Amazon before Delhi and Rajasthan High Courts , (vi) Relied upon Supreme Court judgment in the Bharti Airtel case and Star India Pvt Ltd. Vs CCI judgement of Bombay High Court setting aside the prima facie orders of CCI.
Gist of arguments by FlipKart-Like Amazon, FlipKart too repeated many of its initial arguments but mainly focussed on (i) omission to consider the “jurisdictional facts” such as absence of agreement between enterprise related vertically and whether such agreements cause appreciable adverse effect on competition (AAEC) in India in terms of Section 3(4) of the Act (ii) the exclusivity is not forced by FlipKart but demanded by the sellers for which FlipKart as the platform cannot be held responsible.
Gist of arguments by CCI- CCIrestricted itsarguments mainly on facts and settled jurisprudence against non-interference by Courts in its inherent jurisdiction to inquire into market distortions. The CCI Counsel focussed on (i) The impugned order being a prima facie order in the nature of an administrative direction to its investigative wing, the Director General (DG), which does not determine any rights or obligations of the parties, in terms of the famous judgment of the Supreme Court in CCI vs. SAIL (ii) None of the parties have challenged the inherent jurisdiction of the Commission to investigate alleged anti-competitive practices (iii) absence of any sector specific regulator for e-commerce in India (iii) None of the parties have challenged bona fides of the impugned order i.e no one has alleged any mala fide intention on the part of CCI as market regulator (iv) None of the parties have challenged that the impugned order is against the Wednesbury principles of unreasonableness (v) In Bharti Airtel judgment , the Supreme Court has cautioned High Courts against interfering against CCI prima facie orders under Section 26(1) of the Act or review it on merits (vi) CCI had , after due analysis, had found instances of vertical arrangements in the nature of “preferred sellers” and preferential listings of such sellers on both the Amazon and FlipKart in the context of violations of Section 3(4) of the Act in the Inter-platform , intra-platform and inter-channel distribution (vii) the reason why either Amazon or FlipKart was not called for discussion before passing the impugned prima facie order (unlike in the initial case of All India Online Vendors Association ( AIOVA) Vs. FlipKart in 2018) was that since then CCI had commissioned its own market study and had gained sufficient knowledge and understanding on e-commerce and online markets and that the said order of CCI closing the case against FlipKart was set aside by the Appellate tribunal and investigation had already started against FlipKart by then[1] (viii) Hearing the opposite parties before the prima facie order was not mandatory in terms of the judgment of the Supreme Court in CCI vs. SAIL case , (ix) the locus standi or motive of filing information by DVM at the instance of CAIT or otherwise was wholly irrelevant in view of the judgement of the Supreme Court in the Sameer Agarwal vs. Uber & Ola case , (x) Issues like “exclusive agreements” ,”deep discounting” , preferred sellers” raised by DVM in the Information filed have potential competition concerns which are within the CCI jurisdiction need to be investigated and (xi) CCI is not the only Antitrust regulator inquiring into Amazon’s market conduct and European Commission has also initiated probe against Amazon in July 2019 for use of competitive sensitive data of sellers and its potential misuse .
Gist of arguments by DVM -DVM pleaded that (i) factual averments made by Amazon in the writ petition vis-a-vis the allegations made by DVM cannot be decided in writ jurisdiction and can only be verified during an investigation and (ii) the admissions made by Amazon relating to existence of “certain agreements between Smartphone manufacturers and Amazon” show that there were agreements in place which require examination during investigation.
Gist of arguments made by CAIT– The Counsel for CAIT, while adopting the arguments of DVM , in addition argued that (i) Karnataka High Court lacks territorial jurisdiction to entertain the writ petitions since no cause of action had occurred in the State of Karnataka and even otherwise the High Court lacked supervisory jurisdiction under Article 227 of the Constitution of India since the CCI is situated in Delhi and (ii) the writ petitions were in the nature of appeals on merits which can not be looked into by the High Court but by the NCLAT , being the appellate tribunal.
Decision by the High Court –
On Issues at “A” and ‘B” –
TheHon’ble High Courtacknowledged the various practices of Amazon and FlipKart in the form of “deep discounting”, “exclusive tie ups” and “preferential listings” evidenced in the form of certain emails and averments made in writing in the rejoinder by Amazon pointed out by Mr Abir Roy Ld. Counsel for CAIT and “cash burning” or loss funding” in case of preferred sellers pointed out by Ms Madhavi Diwan, Ld. ASG from the admissions made by FlipKart before the Income Tax authorities as evidence of predatory pricing intentions of Flipkart. The Court after making do references to the relevant paragraphs from the SAIL Judgment and the Bharti Airtel judgment of the Supreme Court, agreed with the Ld. ASG and held that, the impugned order was in the nature of an administrative direction for which no prior notice or hearing Amazon and FlipKart was necessary.
On Issue at “C”
While examining the reasonableness of the impugned order on the touchstone of the Wednesbury principles of unreasonableness , the Court noted that CCI had firstly rejected the allegations of joint /collective abuse of dominance raised in the Information in the absence of statutory provision for the same and then proceeded to examine the material placed before it in support of the allegations of exclusive tie ups, preferential listing in favour of preferred sellers , deep discounting etc. and noted that there were enough evidence available on record in support of each allegation , which showed an application of mind by CCI. The Court rejected the contentions of the petitioners regarding –
- Non- issue of notice or giving opportunity of hearing to Amazon and Flipkart in view of the past precedent in the case of AIOVA Vs Flipkart. The Court agreed with the Ld. ASG that CCI being a market regulator and not a court was not bound by principles of res judicata.
- DVM not approaching the Commission with clean hands and acting at the behest of CAIT. The Court agreed with the Ld. ASG that in view of the Supreme Court judgment in Samir Agarwal case, the locus standi and motive of the informant were irrelevant.
- CCI ought to have waited for the decision of the government examining the allegations of FEMA violations or the pending investigation before the Enforcement Directorate. The Court agreed with the Ld ASG that in view of several judgments of the Supreme Court allowing parallel investigations by different regulators /adjudicating agencies and Section 60 of the Act, there was no bar in CCI inquiry.
Accordingly, the High Court decided that the impugned order did not call for any interference under its writ jurisdiction and dismissed both the writ petitions of Amazon and Flipkart.
Comment: The recent High Court judgment technically reopens the first ever Antitrust investigation against alleged vertical anti-competitive arrangements followed by Amazon and Flipkart with their respective preferred sellers. Since the judgment is likely to be challenged before the Supreme Court it may be premature to conclude that these Big Tech companies are going to stop their usual market practices too soon.
The best defense often heard for these exclusive tie ups and preferential listings to favour their private labels on these online platforms is the likelihood of compromise on quality or even supply of spurious goods by “common” online vendors, for whom, in the absence of any exclusive tie ups with these platforms, the platforms can not guarantee their products for complete customer satisfaction. This is a concern which needs to be addressed by the large number of online vendors or prospective online resellers who want to be granted equal parity or a level playing field with the preferred sellers or private labels on these platforms as tough questions are likely to be asked during any investigation on this issue.
Recent International contemporary developments-
Before closing I am tempted to refer to another recent media news from The Wall Street Journal dated 11 June 2021 from the United States ( what a co-incidence of being on the same date as the above judgment !!) from the United States House Bills Seek to Break Up Amazon and Other Big Tech Companies.
The bills, announced Friday, amount to the biggest congressional broadside yet on a handful of technology companies—including Alphabet Inc.’s Google, Apple Inc. and Facebook Inc. as well as Amazon —whose size and power have drawn growing scrutiny from lawmakers and regulators in the U.S. and Europe.
The proposed Ending Platform Monopolies Act seeks to require structural separation of Amazon and other big technology companies to break up their businesses. It would make it unlawful for a covered online platform to own a business that “utilizes the covered platform for the sale or provision of products or services” or that sells services as a condition for access to the platform. The platform company also couldn’t own businesses that create conflicts of interest, such as by creating the “incentive and ability” for the platform to advantage its own products over competitors.
High-profile antitrust cases against the most popular internet content and service providers (CSPs)[2] have drawn scrutiny on whether these superstar firms have established significant market power based on their data resources, which could impede effective competition and innovation in digital markets.
Similarly, recently, the European Commission (2020a) has published proposals for a “Digital Services Act” and a “Digital Markets Act”, which would implement far-reaching regulations to remedy the market power of data-rich superstar firms, (likeAmazon, Google, Facebook and Apple (referred to as GAFA). These regulations explicitly refer to (big) data as a source of market power and propose rules that, inter alia, would prevent firms from making use of data resources in specific competitive situations. In addition, data sharing obligations would require firms to provide access to their data resources in order to spur innovation and improve market transparency[3].
From the above recent developments it is clear that there is growing realization on the unique market practices of the Big Tech conglomerates like Amazon affecting competition amongst not only competition regulators like CCI in India or the EC in Europe or the FTC in USA but also in the policy makers in the national governments which may lead to regulatory or even legislative steps leading either to break up of these digital giants into smaller companies ( as being proposed in USA ) or rigid regulatory oversight into their current market practices ( as in EU).
#Amazon
#FlipKart #Google #Apple #Facebook #big data, #digital platforms, #internet economy #ecommerce
[1] FlipKart has challenged the said order of NCLAT in Supreme Court.
[2] See for example the European Commission’s decisions against Google in three consecutive years (European Commission, 2017, 2018, 2019a), its investigations into Amazon (European Commission, 2019b, 2020c) and the German federal competition authority’s decision against Facebook (Bundeskartellamt, 2019). In the US, the Department of Justice has recently filed a complaint against Google (Department of Justice, 2020) and the Federal Trade Commission sued Facebook (Federal Trade Commission, 2020).
[3] Abstract from the article – Regulation of Data-driven Market Power in the Digital Economy: Business Value Creation and Competitive Advantages from Big Data available athttps://papers.ssrn.com/sol3/papers.cfm?abstract_id=3759664
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