E-commerce and the anti-competitive practice conundrum

Internet has changed man’s life forever and it is indeed the biggest discovery of the 21st century. The way we educate, work, eat, shop everywhere an application is available to make our lives easier. Flipkart and Amazon have clearly become an inevitable part of our shopping and overall consumption habit. It not an exaggeration to say that E-commerce is the future of commerce.

It is hard to ignore the fact that the E-commerce platforms enjoy a leverage over the regular retail market because of the convenience and facilities it provides to young consumers. These platforms in order to engage the customers often get caught in the race to make the latest product available on the website at a discount. This availability acts as a force of habit over the customers to look up a purchase on these platforms and then approach the local market. The retailers are at a risk of peril because of their limited market reach but also have a hard time keeping up with the competition given by the e-commerce giants. There is no denying that the e-commerce giants deeply hurt the small traders by engaging in anti-competitive practices.

A similar issue came into light when Delhi Vyapar Mahasangh a group of small and medium business owners filed a complaint against Amazon India and Flipkart alleging them to be engaged in anti-competitive practices like preferred selling and deep discounts. These practices damage the retail market of the small businesses. CCI admitted the complaint and ascertained that it has jurisdiction to investigate the given matter as it was not questioning the source of fund or foreign direct inflow in these websites but merely will focus on certain acts which maybe anti-competitive in nature. Subsequently CCI passed an investigative order against the companies. After the said admission and order by the CCI the two e-commerce platforms approached the Karnataka High Court to quash the order. Amazon in its defence claimed before the High Court that CCI has passed the order to investigate “without application of mind”. The defendant claimed that the CCI has approached the High Court after a delay of 200 days and should directly approach the Supreme Court as it would be an appropriate forum. The Karnataka High Court granted interim stay on CCI’s investigative probe.

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Supreme Court declined the plea made by the CCI to stay the order of Karnataka High Court and directed the CCI to approach the Karnataka High Court to vacate the stay on the order passed by it earlier.

On 11th June 2021, the Karnataka High Court gave a green signal to the Competition Commission of India to conduct the investigation of the allegation of anti-competitive practice put upon the companies. The investigation will be conducted by the CCI through the director general. The court passed the order to investigate the matter by examining the evidence which suggested that there seems to be an exclusive partnership between the smart phone manufacturers and e-commerce platforms.

Vertical agreement and the anti-competitive practice

The Competition Act, 2002 under Section 3(4) states the kinds and criteria for identification of vertical anti-competitive agreement. It states any agreement formed amongst persons or enterprise who are at the different level supply, production etc., will constitute an anti-competitive agreement if such agreement causes appreciable adverse effect in the market.

Vertical anti-competitive agreement can take place in the form of (a) tie-in arrangement; (b) exclusive supply agreement; (c) exclusive distribution agreement; (d) refusal to deal and (e) resale price maintenance.

The present case deals with the situation of “exclusive supply” and “exclusive distribution agreement”. In this case the Delhi Vyapar Mahasangh put an allegation on the Amazon and Flipkart to form an exclusive supply and distribution chain with the smart phone companies. The informant has claimed that Amazon and Flipkart had 36 per cent and 53 per cent market share, respectively, in the market for smartphones sold on online marketplaces in India in the first quarter of the year 2019.

CCI’s Jurisdiction over anti- competitive practices

Under Section 18 of the Competition Act, the CCI has the duty to investigate and banish any and all the acts committed by enterprises or individuals which can cause appreciable adverse effect, or create barriers for the new entrants in the market.

Director general’s powers to investigate

Under Section 19 of the Act the Competition Commission has the jurisdiction to try the cases related to anti-competitive agreement. The Director General of the commission conducts the investigation the complaint regarding the anti-competitive agreement can be made by central government, state government, by the suo-moto action of the commission.  The Director General may ask to present any required information related to the investigation by the party filing the complaint to the CCI. The Director General has limited power when it comes to the investigation of the contravention of the anti- competitive agreement. The Director General has to act within the scope of CCI and the outline of investigation as drawn by the CCI it cannot start entirely different investigation which is beyond the scope of the commission. If after preliminary investigation the Director General believes that there is a need for further investigation or there is a different line of investigation the CCI if agrees to the findings of the Director General then carries out further investigation as per the Act.

Way forward

After, the authorization to investigate is received from the Karnataka High Court. CCI will investigate the matter and come to a conclusion does this exclusivity endowed upon the e-retailers actually constitute ‘appreciable adverse effect’ or it is just an inherent privilege of internet based business structure.

By Avantika Banerjee

Co-Founder ISLR

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