Month: October 2014

The E – Commerce Debate: A Different Perspective.

images

 

The business and commercial class of the Country has for quite some time now been debating about the predatory effects of e-commerce websites in India, with Flipkart in India and Amazon abroad (see our previous posts here and here) being predominant recipients of the flak. And publishing houses are now the latest to enter the fray.

 

Many of our opinions would be repetitive to those already cited innumerable number of times in the media, so we’ll keep them out of this post. Rather, I want to discuss a perspective which is being discussed less on public fora.

 

Firstly, a Times of India Article has claimed to cite sources in the C.C.I. stating that the practice will not be predatory pricing as the relevant market would be the entire retail market of India, wherein e-commerce websites possess a meager one to two percent share. I am not aware about the authority of the papers “sources”, but I would respectfully beg to differ with the quotes in the piece. The relevant market can easily be differentiated to be the “E-Commerce Retail Market” and not the entire Retail Market as a whole. The most important reasoning for the definition is the presently low internet penetration in the Country. People without access to the internet (which comprises a large majority of the population, am sure everyone would agree) cannot possibly buy any items from these websites (or even choose to) and therefore would have  to compulsorily rely on Brick and Mortar stores. Furthermore, internet users buying from these sites can be considered a different “Class” unto themselves, especially for certain category of items, which may result in a drastic fall in Brick and Mortar retail sales of certain category of items, for example, especially books, which these internet users may not buy anymore (evidence for this is quite significant).

 

I do however, concede that the case becomes a bit complicated in light of recent developments, i.e., Amazon deciding to open it’s first “Brick and Mortar” store in New York. Indian E-Commerce start-ups are also not far behind., which will require an analysis as to how much business would be sourced from these stores to the E-stores, and what will have to be taken into consideration is that these Brick and Mortar stores are being/would be set up in metropolitan cities or large towns and would have a relatively small “influential radius”. Add to this the trend in India where a number of individuals, especially individuals below the age of thirty, prefer to browse through the Brick and Mortar Store, check and choose what they like, and then go online to find the best deal among these e-commerce websites.

 

Secondly, the factual question which needs to be clarified, (as aptly stated here), is the contours of the agreements which are being entered into between the websites and the sellers/retailers. There have been too many contradictory statements in the media, with retailers often claiming they lack bargaining power against the likes of Flipkart and Amazon, whereas one reads counter accusations from the websites that the sellers themselves set the price and they as mere intermediaries. What also needs to be clarified  factually is which party decides on the discounts, including how much to give and in what proportion are the burden of the discounts borne between the parties. In case evidence is found that it is the websites who bare the burden  of the discount, it may bring about a case of atleast Margin Squeezing, if not Predatory Pricing. Granted, the concept of Margin Squeezing would be an absolutely new concept to be introduced into Indian competition law jurisprudence, but it is certainly recognised under Section 4(2) of the Act.

 

In conclusion, this is definitely not the last post on this Blog on the issue, but facts do go to show that E-Commerce websites may not be as “destructive” as many (including the author) had predicted. What we see is that a successful company like Flipkart or Amazon cannot absolutely divest itself from the hard and competitive world of Brick and Mortar Retail, but rather is required to augment it with arguably questionable tactic to justify the absurd valuations to which the companies have been raised.

NLSIU Certificate Course on Competition Law and Practice.

nlsiu-bangalore-mbl-pg-course-distance

N.L.S.I.U., Bangalore is holding a three day Certificate Course on Competition Law and Practice from the 14th of November, 2014 to the 16th of November, 2014.

 

“In order to promote research, create awareness amongst professionals and students, to further endow them, and build their capacity and knowledge, in the field of Competition Law and Market Regulation, National Law School of India University, Bangalore is organizing a Three  Day Non Residential Certificate Course on Competition Law in India.”

 

For further details, click here.

A Nobel for Competition Law. :)

tirole-portrait   Well, to be precise, it’s a Nobel for the Economics of Competition Law. And there can be no doubt that the man who’s picture you see above deserves it hands down !!   Jean Tirole is the official winner of the 2014 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2014 “for his analysis of market power and regulation”.   His work is extensive and if I start off, this is going to become a fairly long post, so I managed to find a fairly decent summary for our readers to get to know him and his work better.

UPDATE: Also find an Article by Prerna Katiyar titled “Jean Tirole: Why the Economics Nobel prize winner’s research is important for India”  recently published on 19th October, 2014.

Director’s Brought Under The C.C.I. Scanner

The post below is by Kritika Sethi, a 4th year B.A. LLB. (Hons.) Student at NALSAR, Hyderabad. In it, she examines the Director’s Fiduciary competition law liability in light of the recent C.O.M.P.A.T. Order in National Stock Exchange v C.C.I., Appeal No. 15 of 2011.

 

download (1)

 

The Competition Appellate Tribunal (C.O.M.P.A.T.) in its recent Order dated 05.08.2014 in the case of National Stock Exchange v C.C.I., Appeal No. 15 of 2011,  has upheld the Order of the C.C.I. in MCX Stock Exchange Limited v. National Stock Exchange of India Ltd., Case No. 13 of 2009 [Majority Order, Dissenting Order, Section 38 Order] in holding the Company liable for abuse of its dominant position in the currency derivative business segment.

The  case arose out of an information which was filed by the MCX Stock Exchange (“MCX”) against National Stock Exchange of India Ltd.(“NSE”) wherein it was alleged by the former that the latter has abused its dominant position in the Currency Derivatives (“CD”) segment. CD was introduced in accordance with the recommendations of R.B.I. and S.E.B.I. in August 2008. NSE had started its operation in the CD segment from that month itself. Further, vide its circular dated 26.08.2008, it had announced a waiver of transaction fee in all the currency future trade which included the CD segment. This waiver was extended from time to time. This extension was in operation when Section 4 of the Competition Act, 2002 was notified in 2009. MCX and NSE were the only active players that dealt in the currency derivatives market. The former operated in the CD segment only. It was not given the license to operate in any other segment like Stock Futures and Options, etc. On account of the waiver of the transaction fees and other associated charges in the CD segment by NSE, MCX was forced to waive various charges as well. It could not levy any other charge for income generation such as, inter alia, annuals subscription fees, and advance minimum transaction fees. By virtue of this waiver, it suffered huge losses. Further, NSE was charging annual subscription fees in the other segments, where MCX didn’t have a license to operate. Therefore, it was alleged by the MCX that this had a potential of removal of the only competitor and any potential competitor in the CD market due to its non-profitability.

NSE was held to be a dominant player in the market on account of its resources, size, higher degree of vertical integration, power in the market, absolute dependence of consumers etc. NSE had a higher market share than MCX and was financially stable and sufficiently resourceful to survive in the market despite waiver of any transaction charges, which was not the case with MCX.

The point to be appreciated is that the additional fiduciary duty which has been imposed on the director’s of the Company to be cautious in not violating the Competition Act, 2002. The Companies Act, 1956 did not codify the myriad of duties of the director’s of a Company and so the Courts had to rely upon common law in order to cast any duty on the directors. The Companies Act, 2013, on the other hand, recently codified various duties of a director of a Company under Section 166 of the Act. It provides for two kinds of duties i.e. duty of care, skill and diligence and fiduciary duties. One recent addition is the ‘fiduciary antitrust duty’ pursuant to which, if the company is in a dominant position in the market, the directors have a duty to take precautions so as to not to abuse the same. The Competition Act, under Section 4, does not proscribe enjoyment of a dominant position by an enterprise in the market. It is its abuse which is penalised under the Act.

The Tribunal opined that NSE must have known about the “activation” of Section 4. The Tribunal was “perplexed” when, after going through the minutes of the Pricing Meeting of the company, there was no mention of Section 4 being taken into consideration while deliberating on whether to extend the fee waiver on March 30, 2009 till June 2009; whereas the section was notified on 20 May 2009. The tribunal had expected NSE to take note of the activation of Section 4 of the Act as and when it was notified.

This ruling can have an immense impact on other companies which are assumed to be aware of their dominant position in the market. Its impact on cases brought up in the future will have to be analysed to fathom the scope of such a duty.

The penalty imposed on NSE by the CCI (and as upheld by the COMPAT), has been stayed by the Supreme Court by its Order on Sept 23, 2014.

 

The Speed Limit Debate

download

 

As the Network Neutrality debate rages in the U.S. over the Comcast – Time Warner Merger, here are two interesting pieces on the flak which Comcast is receiving. It goes without saying, Comcast isn’t happy and it seems to have started losing it’s cool over the issue.

 

The first is an article on how Network Neutrality is already being subverted through the indirect route of the broadband network. This is not surprising, as the potential for this abuse was already pointed out some time ago by Susan P. Crawford in the Yale Law and Policy Review.

 

The second is a novel solution (and one which I really liked) by BitTorrent, Inc. CEO Eric Klinker on reaching a middle ground on the Network neutrality debate and torrent websites: pay the torrent websites to slow down rather than the websites paying the network provider for equal treatment at par with other websites.  Interestingly, BitTorrent, according to the post, “has voluntarily remained in a “slow lane” of sorts for several years because of the uTorrent Transport Protocol (uTP), which reduces the speed of data transmissions when they might harm other applications. BitTorrent and its users don’t get paid for relying on this protocol, of course, but Klinker suggested they should.”