Abuse of Dominance [Emphasis on Leveraging]

(Final Submission)

Submitted By
Shubhankar Kumar
Group B, PRN 13010224090, Class BBA.LLB
Symbiosis Law School, NOIDA
Symbiosis International University, PUNE
In
October, 2016

Under the guidance of

Mr. Abir Roy
Professor in charge
Competition Law
Symbiosis Law School, Noida
 Certificate

The project entitled “Abuse of Dominance [Emphasis on Leveraging]” submitted to the

Symbiosis Law School, NOIDA for Competition Law as part of Internal assessment is
based on my original work carried out under the guidance of Mr, Abir Roy from August
to October, 2016. The research work has not been submitted elsewhere for award of any
degree.
The material borrowed from other sources and incorporated in the thesis has been duly
acknowledged.
I understand that I myself could be held responsible and accountable for plagiarism, if any,
detected later on.

Signature of the candidate

Date:
 Acknowledgements

I have taken efforts in this project. However, it would not have been possible without the kind
support and help of many individuals. I would like to extend my sincere thanks to all of them.

I am highly indebted to Mr. Abir Roy for his guidance and constant supervision as well as for
providing necessary information regarding the project & also for his support in completing the
project.

I would like to express my gratitude towards my parents & member of the Symbiosis Family
for their kind co-operation and encouragement which help me in completion of this project.
My thanks and appreciations also go to my friends in developing the project.

Shubhankar Kumar
 1. Abuse of Dominance: Legislative Framework

Section 4 of the Competition Act provides that no enterprise or group will abuse its dominant
position. The said section regulates unilateral conduct. Dominant position has been defined
under the Competition Act as ‘position of strength, enjoyed by an enterprise, in the relevant
market, in India, 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
favour’ 1

In India, the determination of ‘dominance’ is based on a qualitative assessment of the prevalent

market dynamics and the relative position of strength enjoyed by the market participants.
Section 4 of the Competition Act stipulates that practices such as imposition of unfair or
discriminatory conditions on price in purchase or sale (including predatory pricing), limiting
or restricting the production of goods, denial of market access, and leveraging market position
in one relevant market to enter into another relevant market, shall amount to abuse of
dominance.

The decisional practice suggests that the key analysis that is done by the CCI and Competition
Appellate Tribunal, to date, in analysing dominance cases is whether the enterprise under
investigation has a position of strength. Such position of strength so enjoyed by the enterprise
enables it to affect the competitors or consumer and the market dynamics, in its favour.

Based on the definition of dominance and the scheme of the Competition Act, it is to be noted
that in every dominance investigation, there are three key elements which are analysed by the
CCI:

(A) Determination of relevant market.

(B) To analyse whether the entity under investigation is dominant in the relevant market.

(C) If the entity is found to be dominant, whether the dominant entity has engaged in any
actions which can be considered as an abuse of dominant position under section 4 of the
Competition Act. 2

1
Section 4 (2) a – Explanation, Competition Act, 2002.
2
Roy, A. (2016). Competition Law in India: A Practical Guide, Page 157
 2. Position of Strength

To determine position of strength, the definition of dominance under the Competition Act
provides for two broad parameters which the CCI needs to look into, to identify whether the
enterprise in question enjoys a position of strength:

(a) Operate independently of competitive forces prevailing in the relevant market: A market
operates where there is an interplay of market forces of demand and supply. Further, a market
participant is constrained in its behaviour because of various competitive forces prevalent in
the market like other efficient competitors, strong buyers, market structure, market entry, or
any other relevant factors in the concerned market.

Further, a market participant may also constrained by other factors like strict government
regulations with respect to pricing etc. Therefore, for the purpose of ascertaining dominance,
it is important to examine the ability of an enterprise to operate independently page "159" of
such competitive forces prevalent in the market, especially competitive forces generated by its
rivals. Further, an enterprise cannot behave in a manner which is totally lopsided in its favour
without keeping in to account the concerns of the other market participants, unless the entity
in question has an appreciable position of strength. As elaborated earlier, the CCI and
Competition Appellate Tribunal, in its decisional practice, has always given emphasis on
whether the enterprise has a position of strength, which can be derived from its market share,
financial muscle, regulatory barriers, structural barriers emanating from the operations of
dominant enterprise and other operational barriers which have become entry barriers for new
players in the market. In this regard, it is apposite to note the approach of the CCI in the DLF
case. The CCI reviewed the agreements entered into between DLF and the buyers, in great
details. While analysing the competition law concerns emanating from such agreement, DLF
argued that such one-sided agreements entered into with buyers are standard industry practices
and all the players in the market follow such practices. The CCI, however, did not give
importance to the defence because it noted that DLF is a market leader and a trendsetter and it
is not bound by practices of minor players. As such, after observing the market practice of DLF
have the other players aped the practice of executing onesided agreements because they do not
have the competitive might of the dominant enterprise. As such, the CCI noted that DLF has
acted in a manner which has affected the competitor and consumer behaviour, to its advantage.
(b) Affect its competitors or consumers or the relevant market, in its favour: This second aspect
is interlinked with the first condition. It is critical to find out whether the entity can operate
independently of other competitive forces emanating from competitors and consumers. This
limb of the definition deals with the between the position of strength held by the enterprise
concerned and the competitive process, i.e., the way in which the concerned enterprise and
other relevant stakeholders interact on the market. Dominance is the ability to prevent effective
competition being maintained on the market and to act to an appreciable extent independently
of other players. Generally, in a competitive market, any behaviour of a market participant will
have a corresponding response from a counter party. For example, if a market participant
increased the price of its good or imposed unreasonable conditions to the detriment of the
counter party, the counterparty would chose the product of the competitor of such market
participant. Further, an increase in price will also result in lowering of sales if there is a
substitute good available in the relevant market. However, when such behaviour is been
imposed by the dominant enterprise, the counter parties have no option but to abide by the
conditions imposed by such dominant undertaking. They are faced with a take it or leave it
proposition by such an enterprise. Similarly, in the event the dominant undertaking starts
undercutting the price of its product, the other players in the market have no option but to
follow suit, just to remain competitive in the market. An enterprise which is capable of
substantially increasing prices above the competitive level for a significant period of time is
generally in a position of strength and possesses the requisite ability to act to an appreciable
extent independently of competitors, customers and consumers. Further, unlike enterprises in
a market characterized by effective competitive constraints, a dominant enterprise is able to
price above the competitive level and earn supra normal profits in the process. Further,
dominant enterprise can also maintain supra normal profits by reducing output and hence
escalating demand of the product. The key point is whether the enterprise can conduct its
business operations irrespective of the behaviour of the competitors, its customers and
consumers. If the answer is yes, then the enterprise/group will be considered to be in a position
of strength. 3

3
Ibid page 157-159
 3. Indices of Dominance4

As mentioned above, dominance is a position of strength enjoyed by an enterprise/group which

enables it to prevent effective competition being maintained in the relevant market by behaving
to an appreciable extent independently of its competitors, its customers and ultimately of the
consumers. Section 19(4) of the Competition Act provides for certain indices which the CCI
can take into account whole determining whether the entity, under investigation, enjoys a
dominant position or not. The CCI, in its advocacy booklet on abuse of dominance, has noted
that dominant position is the ability of the enterprise to behave/act independently of the market
forces that determines its dominant position. In a perfectly competitive market no enterprise
has control over the market, especially in the determination of price of the product. However,
perfect market conditions are more of an economic ‘ideal’ than reality. Keeping this in view,
the Act specifies a number of factors that should be taken into account while determining
whether an enterprise is dominant or not. It is to be noted that in conducting a dominance
analysis, it is relevant to consider the market position of the alleged dominant enterprise,
market position of the competitors, barriers to entry and expansion, regulatory norms and buyer
power. The existence of dominance position may be derived from several factors which, taken
separately, may not necessarily be determinative.
Section 19(4) of the Competition Act reads as follows:
The Commission shall, while inquiring whether an enterprise enjoys a dominant position or
not under section 4, have due regard to all or any of the following factors, namely:–
(a) Market share of the enterprise;
(b) Size and resources of the enterprise;
(c) Size and importance of the competitors;
(d) Economic power of the enterprise including commercial advantages over competitors;
(e) Vertical integration of the enterprises or sale or service network of such enterprises;
(f) Dependence of consumers on the enterprise;
(g) Monopoly or dominant position whether acquired as a result of any statute or by virtue of
being a Government company or a public sector undertaking or otherwise;
(h) Entry barriers including barriers such as regulatory barriers, financial risk, high capital cost
of entry, marketing entry barriers, technical entry barriers, economies of scale, high cost of
substitutable goods or service for consumers;

4
Supra note 2 page 161
(i) Countervailing buying power;
(j) Market structure and size of market;
(k) Social obligations and social costs;
(l) Relative advantage, by way of the contribution to the economic development, by the
enterprise enjoying a dominant position having or likely to have an appreciable adverse effect
on competition;
(m) any other factor which the Commission may consider relevant for the inquiry.

While the Competition Act provides for the indices for determining dominant position, the CCI
makes a holistic assessment to understand whether the entity under investigation enjoys
position of strength. As mentioned above, it can look at market situations in different relevant
markets too, for determining whether the entity under investigation enjoys dominant position.5
Even the Competition Appellate Tribunal has also observed that there is no tick-the-box
approach while determining whether an entity enjoys a dominant position. There is no priority
which is given to any factor enlisted under section 19(4) of the Competition Act while
determining dominance. Now, we look at each factor mentioned in the said section for
determining dominance.

4. Abuse of Dominance 6

It must be noted that the Competition Act provides that only abuse of dominance is in violation
of the provisions

of the Competition Act. An enterprise merely holding a dominant position is not a violation of
the Competition

Act. Section 4 of the Competition Act provides for the following:

Abuse of dominant position

4. (1) No enterprise or group shall abuse its dominant position.

(2) There shall be an abuse of dominant position under subsection

5
12.61 DLF decision
6
Supra note 2 page 165-166.
(1), if an enterprise or a group.—

a) directly or indirectly, imposes unfair or discriminatory—

(i) condition in purchase or sale of goods or service; or

(ii) price in purchase or sale (including predatory price) of goods or service.

Explanation.— For the purposes of this clause, the unfair or discriminatory condition in
purchase or sale of goods or service referred to in subclause (i) and unfair or discriminatory
price in purchase or sale of goods (including predatory price) or service referred to in subclause

(ii) shall not include such discriminatory condition or price which may be adopted to meet the
competition; or

(b) limits or restricts—

(i) production of goods or provision of services or market there for or page "177"

(ii) technical or scientific development relating to goods or services to the prejudice of

consumers; or

(c) indulges in practice or practices resulting in denial of market access in any manner; or

(d) makes conclusion of contracts subject to acceptance by other parties of supplementary

obligations which, by their nature or according to commercial usage, have no connection with
the subject of such contracts; or

(e) uses its dominant position in one relevant market to enter into, or protect, other relevant
market.

The CCI has held that types of abuses identified under section 4(2) of the Competition Act is
exhaustive and not illustrative. However, considering the language, structure and the overall
purpose of the Competition Act, it is felt that the kinds of abusive conduct mentioned in section
4(2) are only specific instances of abuses and not exhaustive of all the abusive conducts covered
under section 4.

The substantive contravention of abuse of a dominant position is covered under section 4(1)
which reads – ‘No enterprise or group shall abuse its dominant position’. It would be
interesting to note that the statutory scheme under sections 3(1), 4(1) and 6(1) are the same:
Section 3 (1) – ‘No enterprise … shall enter into any agreement … which causes or is likely
to cause an appreciable adverse effect on competition in India’

Section 4 (1) – ‘No enterprise or group shallabuseits dominant position’

Section 6 (1) – ‘No person or enterprise shall enter into a combination which causes or is likely
to cause an appreciable adverse effect on competition in India.’

The language of the three provisions is uniform and similar and a perusal of these provisions
would demonstrate that the substantive obligations are covered under sections 3(1), 4(1) and
6(1). The provision stipulate that the enterprises should not enter into any agreement causing
or likely to cause an appreciable adverse effect on competition in India or abuse its dominant
position or enter into a combination causing or likely to cause and appreciable adverse effect
on competition in India. This is also further demonstrated by section 19(1) of the Competition
Act which states ‘The Commission may inquire into any alleged contravention of the
provisions contained in subsection (1) of section 3 or subsection (1) of Section 4 …’ Therefore,
the Competition Act supports the view that the contravention that the CCI will inquire into is
a contravention under section 4(1). Therefore, the scheme of the statute clearly provides that
the substantive obligation is enshrined in section 4(1). Also, sections 3 and 6 where the
agreements or combinations having or likely to have an appreciable adverse effect on
competition in India are declared void under sections 3(2) and 6(1) respectively, section 4 does
not have any such similar provision. Sections 3 and 6 are concerned with the ‘effects’ of an
agreement or a combination. However, under section 4 because of the dominant position
enjoyed by an enterprise, the legislature in its wisdom has decided that an ‘enterprise’ shall not
‘abuse’ such a position. The emphasis under section 4(1) is on ‘abuse’ and although the word
‘abuse’ page "178" has not been defined under the Act, the legislature has wisely left it open
to be decided on a casetocase basis because the ‘nature and type of abuse’ may differ with time
and depending upon the market in question. Therefore, under section 4(1) a substantive
obligation has been imposed upon the dominant enterprises not to abuse ‘its’ dominant
position.

The CCI has also correctly held in the Hiranandani case (discussed in Chapter II above) that
section 3(1) is the genus and agreements covered under sections 3(3) and 3(4) are but particular
species of agreements that will otherwise be covered under section 3(1) and that agreements
not falling within section 3(3) and 3(4) will still fall under section 3(1). This logic equally
applies in the case of section 4.
Section 4 provides the substantive obligation that an enterprise cannot abuse its dominant
position. Section 4(2) identifies certain conduct as abusive in nature for the purposes of section
4(1). It reads – ‘There shall be an abuse of dominant position under subsection (1), if an
enterprise or group’ undertakes any of the actions mentioned therein. Section 4(2)
independently does not exhaustively identify all the abusive conduct under section 4(1), it only
states that the specific conduct identified in section 4(2) are considered to be an abuse of
dominant position. Therefore, conduct that is abusive in nature will still be covered under
section 4(1) as the emphasis is on ‘abuse’. The natural meaning of the term ‘abuse’ would be
applicable. If it were to be held that section 4(2) is exhaustive then it would result in holding
section 4(1) nugatory and otiose. It has been held by the Hon’ble Supreme Court in a large
number of cases that interpretation will be adopted which would give meaning to a provision
rather than to hold it nugatory (from the legal maxim ut res magis valeat quam pereat).
Therefore, the statutory scheme of section 4 and the legislative scheme of the Competition Act
would demonstrate that the abusive conduct mentioned in section 4(2) is not exhaustive but is
merely illustrative of certain kinds of abusive conducts.

The Competition Act provides for a list of conduct, which are enlisted as an abuse of dominant
position. A bare reading of section 4 of the Competition Act would imply that such actions are
per se an abuse of dominant position, and there is no scope of defence (like objective
justification) in an abuse of dominance investigation. The limited defence mentioned under the
Competition Act would be the meeting competition defence for abuse of unfair pricing. Having
said that, the CCI has taken into account defences raised by dominant players in their behaviour
and analysed whether on the facts and circumstances of the case, such defences can be accepted
as valid business defences. While the wording of the Competition Act may show that principle
of strict liability is laid down and no effects have to be seen, The CCI has incorporated the
effects doctrine in its analysis of dominance investigations.

5. Leveraging of Dominant Position 7

Section 4(2)(e) of the Competition Act provides that there shall be an abuse of dominant
position, when the dominant undertaking uses its dominant position in one relevant market to
enter into, or protect, other relevant market. The Competition Act has expressly included the

7
Supra note 2 page 222-223
aspect of leveraging as an abuse of dominant position. The key point of consideration is that
there must be an exploitation of market power by the dominant player in the market in which
the enterprise is dominant to enter into or protect their position in the market in which such
player is not dominant. There are situations, especially in a multiproduct companies or group,
where there are lot of joint costs and cross subsidization. When does cross subsidization
become an issue of leveraging depends on facts and circumstances of each case.

The CCI has examined the provision relating to leveraging in the NSE case and the Automobile
Spare Parts case and following are the key interpretations which have emerged from the
decisional practice of the CCI:

(a) The dominant enterprise in the first market need not possess dominant market position in
the second market where it makes attempts to leverage its market power. The aspect of
leveraging deals with a situation where an enterprise in dominant position in any delineable
relevant market uses its strength therein to enter or protect any other delineable relevant market.
The Competition Act does not provide that there has to be a high degree of associational link
between the two markets (market in which the enterprise is dominant and the second market
which it intends to enter or protect) being considered for the abuse of leveraging. The CCI, in
the NSE case observed that: The Indian Competition Act recognizes leveraging as an act by an
enterprise or group that ‘uses by its dominant position in one relevant market to enter into, or
protect, other relevant market.’ Nowhere does the Act indicate that there has to be a high degree
of associational link between the two markets being considered for this sub section. This is so
because competition concerns are much higher in India than in more mature jurisdictions
because of the historical lack of competition laws. In India, if an enterprise dominant in the
market of audio-visual (AV) equipment enters into the market of say, computers, it is possible
for it to use its strength in terms of finances, technological expertise, sales network etc. in the
AV market to muscle its way into and protect its position in the computer market, even though
the two markets are not at all connected. That is why the Act does not indicate any requirement
of associational link.

(b) The section uses the term ‘relevant market’ and other relevant market. The Competition
Act recognizes the fact that an enterprise may be multiproduct and may be operating in two (or
more) markets. In case of multiproduct enterprises, such enterprise can use its position of
strength derived in one market to leverage its position and gain unfair advantage over its
competitors in the other market. While its conduct in the second market has to be separately
examined for abuse if and after it acquires a dominant position in the second market, the fact
that it has used the strengths from the first market to wrongfully enter into or to protect the
second market is itself an abuse under the Competition Act. It is to be further noted that in the
event such enterprise, after entering the other relevant market through such leveraging and
thereafter acquires dominant position in the other market, commits further acts of abuse in that
relevant market, then there would be a separate violation of section 4(2)(a)–(d) of the
Competition Act. The CCI, observed in the NSE case as follows:

At this stage, the Commission would like to clarify the intent as well as the import of section
4(2)(e) of the Competition Act, 2002. It is incorrect to argue that the whole of section 4 pivots
around determination of only one ‘relevant market’ or that determination of a second ‘relevant
market’ is not possible or that having treated a particular market as the ‘relevant market’ for
the purpose of explanation (a) to section 4, that market cannot be treated as the ‘other market’
for the purpose of section 4(2)(e) as per the wordings of the provision. Explanation (a) is for
defining what dominant position means for any market being examined under section 4 while
section 4(2)(e) deals with a situation where an enterprise in dominant position in (any)
delineable relevant market uses its strength therein to enter or protect any other (delineable)
relevant market. Section 4(2)(e) uses the terms, ‘one relevant market’ and ‘other relevant
market’. The section recognizes the fact that an enterprise may be multiproduct and may be
operating in two (or more) markets. It may be possible for such enterprise to use its position of
strength derived in one market to leverage its position and gain unfair advantage in the other
market. While its conduct in the second market has to be separately examined for abuse if and
after it acquires a dominant position there, the fact that it has used the strengths from the first
market to wrongfully enter into or to protect the second market is independently considered
harmful to competition under the Act. The ‘relevant market’ of the explanation (a) applies
equally in intent for sections 4(1) and (2) but the relevant market in respect of clauses (a) to (d)
of section 4(2) can be different than the relevant market for the purpose of clause (e). To further
clarify, if an enterprise merely uses its dominant position in any ‘relevant market’ to enter or
protect some other ‘relevant market’ wrongfully, it can only be held guilty of contravening
section 4(2)(e). But if the enterprise, after entering the other relevant market through such
leveraging and acquiring dominant position there, commits further acts of abuse (such as unfair
pricing) in that relevant market, then there would be a separate violation of section 4(2)(a).

It is worthwhile to observe here that the language of section 4(2)(e) does not exclude the
possibility that the enterprise is dominant in both, the ‘relevant market’ as well as the ‘other
relevant market’. An enterprise can be dominant in one market and can enter another market,
acquire position of strength there and then commit acts to protect its position.

6. Conclusion 8

As mentioned above, the CCI, in their decisional practice, has adopted the effects test. The
effect test implies that unilateral conduct may escape the prohibition of section 4 of the
Competition Act in case the dominant enterprise can provide an objective justification for its
behaviour or it can demonstrate that its conduct produces efficiencies which outweigh the
negative effect on competition. The burden of proof for such an objective justification or
efficiency defence will be on the dominant enterprise. The possible types of objective
justification would be in cases where it can be shown that dominant enterprise can show that
the otherwise abusive conduct is actually necessary conduct on the basis of objective business
rationale. The NSE also raised multiple business rationale for engaging in fee waivers in the
currency derivative segment for promoting the currency derivative. NSE raised the point of
promotional/penetrative pricing. It is to be noted that although these defences were not held to
be valid by the CCI and Competition Appellate Tribunal, yet they heard the matter on objective
justification at great length. Their approach implies that the CCI will take into account objective
justification, as a defence. In this background, it becomes all the more necessary for companies,
who have a high market share, to adopt proper documentation of their business processes and
decisions which can be used in a defence in an abuse of dominance investigation.

8
Supra note 2 page 224