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Uber and Ola win antitrust case in India (?) – No Hub and Spoke cartel with drivers -NCLAT dismisses appeal on grounds of lack of locus standi
By way of judgment dated 29.05.2020, the National Company Law Appellate Tribunal (“NCLAT”) has exonerated cab aggregators Ola and Uber from allegations of facilitating price fixing through their drivers under a “hub and spoke’ cartel arrangement while dismissing the appeal filed by an individual on the ground of lack of locus standi . The NCLAT, inter alia, held that an informant before the Competition Commission of India (“CCI/Commission”) has to be a person who has suffered invasion of his legal rights as a consumer or beneficiary of healthy competitive practices.
Background
The informant (an independent law practitioner) had initially filed an Information before the Commission alleging that the online cab aggregators Ola and Uber were using their respective algorithms to facilitate price fixing between drivers. In other words, the informant alleged that there was collusion amongst the drivers through the cab aggregators who purportedly used algorithms to fix prices which the drivers were bound to accept. As per the informant, algorithmic pricing adopted by Ola & Uber takes away the liberty of individual drivers to compete and amounts to price fixing through a “hub and spoke” cartel like arrangement.
The Commission closed the case under Section 26(2) of the Competition Act, 2002 (“the Act”) , without calling for any response from either Uber and Ola , holding that there was neither any instance of any agreement/understanding between the cab aggregators and their respective drivers nor between the drivers inter se qua price fixing. The Commission had also noticed that Ola and Uber being Cab Aggregators operating through their respective apps were not an association of drivers and they acted as separate entities from their respective drivers. A rider books his ride at any given time which is accepted by an anonymous driver available in the area and such driver has no opportunity to co-ordinate its action with other drivers thereby ruling out such activity being termed as a cartel activity. The Commission ruled out any hub and spoke cartel like arrangement between Ola/Uber and their respective drivers.
The informant, being aggrieved by the Commission’s decision filed an appeal before the NCLAT levelling allegations of price fixing in contravention of Section 3 and price discrimination in contravention of Section 4 by Ola and Uber.
Proceedings before NCLAT
Submissions by appellant – The appellant submitted that the Commission has erroneously concluded on the genuineness and legality of the pricing model of Ola and Uber in the absence of their defence, and that the Commission has not refuted the allegation that the OPs fixed prices which the drivers are bound to follow and has, therefore, acquiesced the fact of price fixing and that the Commission has erroneously implied that price fixing done by way of an app is immune from scrutiny. The appellant further submitted that the Commission’s observations that the ‘app determined pricing on many occasions goes lower than what an independent driver would have charged’ does not legitimise the price fixing, that the price determined by a private enterprise cannot be considered as competitive price for all of the drivers for taking that price, and that the Commission has erred in treating drivers and the app providers as a “single economic enterprise” and that the Commission has erred in holding that there is no agreement amongst the drivers to fix prices where the app provider is acting as a “hub” and lastly that the Commission was not justified in ignoring the fact that Uber’s business model was challenged in USA with identical allegations which was considered fit for investigation.
Submission by Ola- Ola submitted that it merely acts as an intermediary which connects two ends of the supply chain i.e. taxi driver and the commuter and Ola and the taxi drivers connected to Ola are not at the same level of supply chain. It was further submitted that the Informant has not been able to establish an agreement between Ola and Taxi drivers connected to it, or between the taxi drivers themselves, where they have agreed to fix prices. As regards pricing mechanism, it submitted that there are numerous variables such as, distance, time, availability of cab, weather etc. based on which the Ola App algorithm sets the fare of the trip which makes it impossible for anyone to fix prices. Contending the allegations of ‘hub and spoke’ cartel, it was submitted that there was no evidence of the taxi drivers entering into a conspiracy by way of Ola App to exchange price sensitive information amongst each other for fixing prices and maintaining the same. Under the business model of Ola, there is no such information which and supply in the city and each specific city/ area where the services are is exchanged amongst the drivers and Ola.
Submissions by Uber- Uber submitted that the price structure offered by it is comparable to metered taxis as well as auto rickshaws which follow standard price mechanism at different points of the day. Moreover, the driver partners are free to charge any amount which is lower than the one recommended by the App and also free to pick-up passengers not using the Uber App. It was further submitted that the surge pricing model is a product of the demand being provided. It was further submitted that the Uber App is a technology service offered by Uber to its driver partners with riders having the choice to go for alternative modes of transport and driver partners having choice to undertake offline private or corporate transport duties. Further the driver partners are free to negotiate a lower fare than what is recommended. Uber further submitted that it does not function as an association with its driver partners, as such it cannot facilitate a cartel between them as alleged.
Submissions on locus standi- It was submitted by Ola that the Informant is not an aggrieved person and that no prejudice has been caused to him and on the basis of foreign law, an inquiry initiated in a foreign jurisdiction cannot be basis for interfering with the impugned order nor can same be done on the basis of opinion of authors of some article in foreign journals. On the other hand, the informant contended that ‘Informant’ falls within the definition of “any person” under Section 19(1)(a) of the Act which includes an individual who can file an information virtually like an F.I.R in a criminal case can be filed by anybody.
NCLAT Decision
Issue of Locus standi- The NCLAT on the issue of locus noted:
“ The question that arises for consideration is whether a ‘person’ would mean any natural person irrespective of he being a consumer who has suffered invasion of his legal rights or a person whose legal rights have been or are likely to be jeopardised by the alleged anti-competitive agreement or abuse of dominant position. It is true that the concept of locus standi has been diluted to some extent by allowing public interest litigation, class action and actions initiated at the hands of consumer and trade associations. Even the whistle blowers have been clothed with the right to seek redressal of grievances affecting public interest by enacting a proper legal framework. However, the fact remains that when a statute like the Competition Act specifically provides for the mode of taking cognizance of allegations regarding contravention of provisions relating to certain anti-competitive agreement and abuse of dominant position by an enterprise in a particular manner and at the instance of a person apart from other modes viz. suo motu or upon a reference from the competitive government or authority, reference to receipt of any information from any person in section 19(1) (a) of the Act has necessarily to be construed as a reference to a person who has suffered invasion of his legal rights as a consumer or beneficiary of healthy competitive practices. Any other interpretation would make room for unscrupulous people to rake issues of anti-competitive agreements or abuse of dominant position targeting some enterprises with oblique motives.”
Accordingly, the NCLAT held that there was nothing on record to show that the informant has suffered a legal injury at the hands of Ola and Uber as a consumer or as a member of any consumer or trade association and therefore the informant has no locus standi to maintain an action qua the alleged contravention of Act by Ola and/or Uber.
On Merits- Even after holding that the informant had no locus, the NCLAT dismissed the appeal on the basis of merits as well. The NCLAT noted that the business model of Ola and Uber does not support the allegation of Informant as regards price discrimination. It was observed that there was no allegation of collusion between the Cab Aggregators through their algorithms which implied an admission on the part of Informant that the two taxi service providers are operating independent of each other. The NCLAT observed that the concept of hub and spoke cartel stated to be applicable to the business model of Ola and Uber as a hub with their platforms acting as a hub for collusion inter se the spokes i.e. drivers resting upon US Class Action Suit titled “Spencer Meyer v. Travis Kalanick” has no application as the business model of Ola and Uber (as it operates in India) does not manifest in restricting price competition among drivers to the detriment of its riders. The matter relates to foreign antitrust jurisdiction with different connotation and cannot be imported to operate within the ambit and scope of the mechanism dealing with redressal of competition concerns under the Act.
Further, as regards Ola, it was observed that that Ola platform have no inter se connectivity and lack the possibility of sharing information with regard to the commuters and the earnings they make out of the rides provided which excludes the probability of collusion inter se the drivers through the platform of Ola. With respect to Uber, it was observed that it provides a technology service to its driver partners and riders through the Uber App and assist them in finding a potential ride and also recommends a fare for the same. However, the driver partners as also the riders are free to accept such ride or choose the App of competing service, including choosing alternative modes of transport. Even with regard to fare though Uber App would recommend a fare, the driver partners have liberty to negotiate a lower fare. It is, therefore, evident that the Cab Aggregators do not function as an association of its driver partners.
On the issue of abuse of dominant position, it was noted that neither Ola nor Uber was holding a dominant position to impose price discrimination considering that there are other players offering taxi service/ transportation service/ service providers in transport sector. Moreover, Ola and Uber are not operating as a joint venture or a group, thus both enterprises taken together cannot be deemed to be holding a dominant position within the ambit of Section 4 of the Act. Accordingly, the appeal was dismissed based on lack locus standi as well as on merits.
Comment: This order of NCLAT, unless challenged by a second appeal in Supreme Court, seems to close the growing challenge to the controversial application-based business model of cab aggregators, at least for the time being, in India. On merits, It is surprising the both the CCI and the appellate tribunal chose to believe on the averments made by both Uber and Ola on their face value without considering it necessary to investigate the matter to find any possibility of harm to competition or whether the algorithms were programmed with a pre-determined manner to produce surged pricing and whether such discriminatory pricing harmed consumers ,as compared with the standard meter taxis prices etc. The order, in my view, exhibits that the competition regime in India is still far away from assessing algorithms-based collusions by e-platforms.
On locus, in my humble view, the order of NCLAT is against the spirit of the original 2007 amendment to the Competition Act, 2002, whereby the concept of “complainant” was replaced with that of an ‘Informant”. As per the statement of reasons before the said amendment an Informant may or may not have any personal interest or suffered any personal injury from the impugned anti-competitive conduct since such conduct is against the society in rem and it is the duty of every citizen to point out such illegal conduct to the Commission and the Commission is mandated to inquire into it if it finds that there exists a prima facie case to investigate . The NCLAT, it is respectfully submitted, has imputed its own interpretation to the words “any person” which is contrary to the legislative intent of the Act as amended in 2007. Interestingly, the Commission itself had not closed the case because of lack of locus standi of the Informant but on merits, which was rightly questioned in the appeal but the NCLAT chose to enter into this question though not very pertinent in my view.
#Uber#OLA #Algorithm #Antitrust #Competition
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