Amazon and Flipkart found violating Competition law in India-DG investigation report out
CCI dismisses allegations of abuse of dominance and exclusive arrangements against Amazon in the menswear fashion retail market
By way of order dated 11.09.2020, the Competition Commission of India (“Commission/CCI”) has dismissed allegations of: (i) abuse of dominance and (ii) concluding exclusive agreements with Amazon Export Sales LLC and Cloudtail India Pvt Ltd (“Cloudtail”) against Amazon Seller Services Pvt Ltd (“Amazon”).
Background
Information before the CCI was filed Lifestyle Equities C.V and its licensee (“Informants”) based in Amsterdam , Netherlands and owning the “Beverly Hills Polo Club” brand of Menswear (hereinafter, the ‘BHPC Brand’), alleging that Amazon has abused its dominant position in the market for online fashion retail in India in which the combined market share of Amazon and Flipkart India Private Limited is almost 62% of the entire online retail space and Amazon holds about 31.1% share in the online fashion retail space. Further, it was submitted that in terms of Gross Merchandise Value (GMV), Amazon is leading with gross sales of $7.5 billion in the financial year ended on March 31, 2018 which showed that Amazon was in a dominant position.
It was submitted that the Informants do not sell or offer for sale any of their fashion products on Amazon’s e-commerce platform and such products are available for sale only on Informants’ own website (now) or its licensee’s website (earlier), or in brick and mortar stores. However, Amazon sells/offers to sell counterfeit/unlicensed/unauthorized products bearing Informants’ BHPC Brand at unfair and discriminatory prices, including predation model, which is supported by their deep pockets and funding. It was alleged that Amazon is resorting to the strategy of growth over profit by offering deep discounts to establish a network for attracting users on-board.
It was submitted that Amazon’s conduct led to diversion of online traffic from the website of the Informants to the website of Amazon for the Informants’ products which not only caused confusion due to visibility of excessive discounting of products under the BHPC brand than the prices of genuine products sold on Informants’ own website, but also resulted in the delivery of inferior counterfeit/unlicensed/unauthorised products of the Informants. Further, such conduct would lead to closure of all other fashion retail websites and all brands including the Informants’ brands as they would be forced to sell on the online website of Amazon alone.
As regards allegations regarding vertical arrangement of Amazon with its preferred seller , Cloudtail under Section 3(4) of the Competition Act, 2002, it was submitted that agreements of Amazon with Amazon Export Sales LLC and Cloudtail to sell counterfeit/unlicensed/unauthorised products are anti-competitive which have created significant entry barriers, and foreclosed the market for other competitors. In addition, it was alleged that Amazon claims to be working on a market place model, however, under the garb of being a market place it is in fact indulging in inventory-based e-commerce service as a result of the anticompetitive which enables Amazon to cross subsidize its product on its website. Further, it was submitted that Amazon through its anti-competitive agreements has created an exclusionary effect for the other non-preferred sellers and has concentrated and amalgamated the sellers with which it has, exclusive tie-in arrangements, thereby limiting the number of suppliers and distorting competition based on preferential treatments.
CCI’s prima facie decision
Abuse of Dominance
The Commission noted that Amazon is a platform that facilitates trade between buyers and sellers and in the previous cases decided by the Commission, it had noted the distinguishing characteristics of these platforms where the sellers would be interested in selling when increasingly high number of buyers visit such online platform and vice versa thus, characterising the online platforms with cross-side network effects. Accordingly, CCI defined the relevant market as the ‘market for services provided by online platforms for selling fashion merchandise in India’.
Relying on Red Seer Report June 2019, it was observed that the online fashion segment consists of many players which includes large horizontals like Amazon and Flipkart and verticals like Myntra, Ajio, Koovs etc. The collective market share of fashion marketplaces’/verticals’ is estimated to be around 50% and that of the large horizontal/multiproduct marketplaces such as Amazon and Flipkart is only 35%. Further, it was found that there are multiple players operating in the relevant market for services provided by online platforms for selling fashion merchandise in India and Flipkart and Amazon are close competitors with comparable market position and resources. This, coupled with the presence of players like Paytm Mall, SnapDeal, Shopclues etc. providing intermediation services in the relevant market led the Commission to hold that there was no platform occupying a dominant position in the relevant market for services provided by online platforms for selling fashion merchandise in India.
The Commission acknowledged that online sale of counterfeits could be a matter of concern for brands and consumers alike, however given that Amazon is not dominant in the relevant market, the issue does not lend itself to antitrust scrutiny.
Exclusive Agreements
As regards allegations under Section 3(4) of the Act, the Commission noted that although allegations with respect to exclusive arrangements entered into by Amazon were made in the information, however, in response to the request of additional information by the CCI, the informant clarified that the contracts of Amazon with brands such as Allen Solly, American crew, US Polo Association, Adidas etc. were not exclusive in nature and it was concluded that exclusive tie ups between platforms and fashion brands do not seem to exist and there are plenty of channels of intermediation available for fashion brands, sellers/retailers and consumers to access/reach each other.
Accordingly, the CCI did not find it to be a case of exclusive arrangement between Amazon and Cloudtail which caused appreciable adverse effect on competition in India and the case was closed under Section 26(2) of the Competition Act, 2002.
While parting with the order, the Commission noted that the informant relied on the observations of the CCI in Case No 40/2019 on similar issues of vertical agreements entailing preferential listings, discounts etc in the online smartphone market. However, it was clarified that the there were differences between the two cases in terms of the potential effect on competition: (i) the online market structures for smartphones and fashion products in India are different with fashion being more diverse and dispersed. Besides the horizontal, multi-product platforms such as Amazon and Flipkart, there are a number of vertical, fashion-only platforms which provide significant avenues for fashion brands and retailers to place their offerings before online consumers. In the case of smartphones, besides the brand-owned, single-brand websites, the only third party, multi-brand platforms available for brands and retailers to access online consumers are Amazon and Flipkart, with their collective share relatively much higher; (ii)the present case does not contain allegations with respect to platform-specific exclusive launch of fashion products by brands unlike the smartphone case, thereby not having the same effect on consumer choice and inter-platform competition.
Comment:
This CCI order, though seems to provide some succor to Amazon , is most likely to be challenged in appeal before NCLAT. The manner in which the Commission has summarily dismissed serious allegations of preferential treatment by surge in rankings and deep discounts offered to sales made by sellers through Cloudtail , the alleged preferred seller , calls for judicial review by the appellate tribunal , in my view . The allegations, given the significant market presence of amazon even in the ‘market for services provided by online platforms for selling fashion merchandise in India’, as defined by the CCI seemed to show at least a prima facie case for investigation, in my opinion.
# Exclusive arrangements # AbuseofDominance #Amazon #PoloClub
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