Network Neutrality: An Update

Yesterday (30.08.2017) will be marked as a watershed day by observers for Network Neutrality. The issue is being hotly contested in arguably the world’s most capitalistically advanced jurisdiction for telecom and the internet (U.S.A.) as well as the jurisdiction with potentially the biggest telecom and internet market, both by the number of users as well as revenue (India) and yesterday was an eventful day in both.

In India, the Telecom Regulatory Authority of India (T.R.A.I.) held and concluded an Open House Session in New Delhi on the issue of Network Neutrality. Unfortunately, being bed – ridden with a fracture, I was unable to attend it myself, but I am informed that all parties were “extremely vocal” with their opinions. T.R.A.I. is likely to publish its recommendations by October. On a side note, Certain telecom companies also complained against SIM-locked handsets coupled with a tariff plan and said that a limited access to certain applications through such devices was as good as a “walled – garden” and against Network Neutrality (No prizes for guessing who they’re talking about).

At the opposite end of the globe, yesterday was the last day to file comments on the Federal Communications Commission plan to deregulate broadband service and roll back net neutrality rules, and at least 21.9 million comments have been confirmed to have been received. Voting by the F.C.C. on the issue is not expected anytime soon, as the Commission is known to take it’s time with decisions after such commentary periods.

Here’s to waiting and watching and hoping for the best.

M/s. Crown Theatre v. Kerala Film Exhibitors Federation (KFEF), Case No. 16 of 2014 (Decided on 08.09.2015)

The case of M/s. Crown Theatre v. Kerala Film Exhibitors Federation (KFEF), Case No. 16 of 2014 (Decided on 08.09.2015) is another case of the C.C.I. which is probably going to get added to the list of cases which is receiving criticism from the COMPAT in Appeal. Not necessarily on the merits of the case but more so on procedure. After all, the K.F.E.F. is a serial competition law violator and has been found to be guilty of the violation of competition law and fined multiple times before (In fact, even the individuals penalised are the same). The problem is with the way fines are being calculated in this particular case.

Shockingly, the fine, which was supposed to be ten percent of the average turnover of the past three years (Financial years 2011 – 2012, 2012 – 2013, 2013 – 2014) has been calculated only on the basis of the turnover of 2011 – 2012. Section 27 clearly mandates that it must be calculated on the turnover of the last three years. It is not optional for the C.C.I. to calculate it without taking into account one or more financial years. Also, the only explanation which has been provided in the table is “not submitted”, which, while understandable, is not a good enough excuse for the non calculation of any statutory penalty as per the law for which a clear formula has been provided under the Act.

Now as per procedure, the C.C.I. always calls for the financial statements of the past three years without prejudice to the merits of the case of the Respondents, so that in the event they are found guilty, the fine, if any, can be calculated. It is possible that the Respondents herein did not comply with the Order of the Commission and intentionally avoided the submission of the statements before the Commission. Thus, a perfect case for the Commission to exercise powers under Section 43 (or Section 45, as the case may be) under the Act. If there is a genuine and reasonable reason for this omission, then the Commission should have clearly stated the same in the Order.

Either way, it gives the COMPAT a clear cut reason to remand he matter back for reconsideration on the issue of penalty, just like it did in the Gas Cylinder Bid Rigging Case.

There IS a Better Way to Call India: A Quick Comment On Competition Law And Advertising.

In all the chaotic hullabaloo which arose on Airtel’s VoIP Data charges issue (detailed article on the issue currently in progress), another protest which drew comparatively little attention (probably due to the substantially lesser individuals/entities it affected) was the protest by International Long distance(I.L.D.) Operators against the Company’s practice of advertising it’s own VoIP Application Airtel Talk over long distance calls. Specifically, a few seconds before connecting the call.

I am a total outsider to the precise details of the case, and the facts are also disputed (I.L.D. Operators claim the advertisement was run selectively only on those networks with whom Airtel had not entered into collaboration agreements. Airtel denies this and claims that the advertisement was played on all networks equally without any discrimination.) But it did get me thinking on the issue of Advertising in Competition Law.

Prima-facie, one would consider advertising and competition law as congruous to each other. After all, advertising is an essential part of the competitive process in any economy. If a consumer is not aware as to what goods and services are on offer and at what price they are on offer, he or she will be unable to choose between the suppliers of the goods or services, and therefore, competition between suppliers may get diminished. But in this imperfect and admittedly anti-competitive world that we live in, it never is that simple. There are two different scenarios which need to be considered while addressing the issue of advertising and competition law.:

Individual Advertising

Individual Advertising is what I referred to above, i.e., an individual entity choosing to advertise it’s products with the aim to grab market share from competitors in the same sector. This would generally not be subject to perceived anti-competitive harm. Misleading and false advertising, including comparative advertising, may be concerns, but in India they would dealt before other fora. There is however some literature which suggests that advertising paradoxically carries with it an inherent anti-competitive effect as advertising costs act as a serious barrier to the entry of new entities wishing to enter a market which is already dominated by a few relatively large competitors, especially in markets which inherently require enormous amounts to be spent in building up a brand name for the product/company. In fact, Bork has even gone so far as to state that it should be considered as a Barrier to trade !! (See Robert H. Bork, The Antitrust Paradox.)

Horizontal Agreements on Advertising

This refers to agreements among competitors in a market, and needless to say, these are a bit problematic. Any agreement among entities which restricts advertising would generally be considered as an anti-competitive agreement.

However, the reaction of the European Commission (E.C.) has been mixed depending upon the facts and circumstances of each case. While in the case of Belgian Roofing Felt, OJ [1986] L 232/15 (later upheld on Appeal in Belasco v. Commission, [1989] ECR 2117) the Commission ruled against joint advertising which led to a uniform image of products in a market wherein individual advertising would have facilitated differentiation, and consequently competition, on the other hand, in Re CECIMO, OJ [1969] L 69/13 and UNIDI, OJ [1984] L 322/10 (later upheld on Appeal in ANCIDES v. Commission, [1987] ECR 3131), it was accepted that it is sometimes desirable to rationalise and coordinate advertising efforts while imposing certain conditions on such coordination.

Post Script: The Advertising Market

As a post script, other than the above, an important area where competition needs to be maintained is the advertising market itself. It is important that the advertising media itself should function in a competitive manner free from any anti-competitive practices, including (but not limited to) any practice which might lead to reduction of advertising space in the market. This has been affirmed in the U.S. as far back as 1951 in Lorain Journal Co. v. United States, 342 US 143 (1951). One such allegation has already arisen before the C.C.I. is the case of Advertising Agencies Guild v. Indian Broadcasting Foundation, Case No. 35 of 2013. Though that particular Information was closed, the currently running Google Investigation before the C.C.I. involves similar issues (among others) and one will have to wait and watch for further competition law developments in this area.

G.C.R.: Immunity, Sanctions & Settlements.

This is admittedly super cool and super useful !! The Global Competition Review (G.C.R.) has an amazing “Know-How” Compilation on “Immunity, Sanctions & Settlements” across all major competition jurisdictions. So if you want an answer to a query related to sanctions and immunity’s across various jurisdictions or even for a particular jurisdiction, simply tick mark the relevant boxes and the answers come right on. 🙂 Even important F.A.Q.’s have been compiled for ease of access and the answers have also been compiled by authoritative practitioners in he field in the relevant jurisdictions. On a cursory glance, I’ve found almost all basic questions covered within them and in some even more.

There are similar compilations for “Private Litigation” and “I.P. & Antitrust”.

By far one of the coolest initiatives in competition law jurisprudence. (Ya I know I sound like a total nerd. :D)

Gabriele Accardo, Vertical Antitrust Enforcement: Transatlantic Perspectives on Restrictions of Online Distribution under E.U. and U.S. Competition Laws.

As a follow up to my previous post, I recently read a very nice Working Paper by Gabriele Accardo, titled “Vertical Antitrust Enforcement: Transatlantic Perspectives on Restrictions of Online Distribution under E.U. and U.S. Competition Laws.”

The paper lucidly discusses the growth, economics, advantages and disadvantages of the E-Commerce Sector and looks at how E.U. and U.S. competition laws deal with restrictions of online sales in distribution agreements. It discusses how “…The growing importance of online commerce highlights how vertical competition law enforcement is still an important building block of competition law policies, both in the U.S. and in Europe”. While discussing the difference in approach between the two jurisdictions, the paper highlights the new competition law rules adopted by the E.U. specifically targeting restrictions of online sales in distribution agreements and explains why the U.S. antitrust doctrine is less concerned about the need to adopt specific rules applicable to restrictions of online sales.

The E – Commerce Debate: A Different Perspective.

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.

C.C.I. Double Standards Or Bad Reporting ??

The recent reports on the alleged demand of the C.C.I. against a number of builders and C.R.E.D.A.I. “to respond to findings by its investigation arm that they engaged in unfair trade practices such as one-sided contracts with inadequate disclosure” have generated a substantial amount of hype and glee and grimace alike. But to be honest, the news report has (at he risk of sounding stupid) left me confused more than anything else. Listed below are the reasons for my confusion:

1. The report states that the Commission began investigations based on a complaint by an individual, Jyoti Swarup Arora, against Gurgaon-based builder Tulip Infratech, the director of town and country planning, Haryana, and the Haryana Urban Development Authority. However, memory served me correct, as I clearly remember the Case being dismissed at the threshold itself. (It is Case No. 7/2011. Order dated 06.04.2011). There is also no supplementary Order of a later date available on the Commissions website therefore it is difficult to believe that the matter was appealed before the Competition Appellate Tribunal and was referred back from there.

2. As per the report, the “CCI has sought responses from Unitech, Oberoi Realty, BPTP Ltd, Gaursons India, K Raheja Corp, Amrapali Group, Supertech Ltd, Tata Housing Development Company, Ansal Properties & Infrastructure, Purvankara Projects, Prestige Estates Projects and Ambuja Neotia Group.The competition watchdog has also sought responses from Avalon Group, Aparna Construction and Estate, Amit Enterprises Housing, Omaxe, Parsvnath Developers, PS Groups Salarpuria Group and Purohit Construction. The Confederation of Real Estate Developers’ Associations of India (C.R.E.D.A.I.) lobby group has also been asked to comment.”

Notwithstanding what has been stated in point one above, there are already cases which have been filed against some of the above mentioned developers which have raised the exact same issues as given the article, and all of them have been dismissed. Assuming the article is not a case of bad news reporting, surely it is nothing less than double standard on the part of the C.C.I., not to mention that those Orders are Orders In Rem, and thus create a clear balance of convenience against these companies which have been showcaused. The Orders are as follows:

Omaxe (Case No. 77/2013 and Case No. 83/2011)

BPTP (Case No. 25 of 2014 and Case No. 33 of 2013 and Case No. 42/2010)

Raheja Group (Case No. 62/2011)

Supertech (Case No. 86/2013 and Case No. 3/2013 and Case No. 28/2012)

Unitech (Case No. 27/2011 and Case No. 21/2011)

Note: Since many of these developers are also involved in commercial construction market, I have chosen to exclude the Informations/Complaints filed against their commercial/office spaces but rather have limited the Orders on the subject matter at hand, i.e., residential apartments/spaces. But just for the record, all the Orders related to commercial spaces have also been held in favour of the above mentioned developers.

3. To quote directly from the article:

“The complainant alleged an understanding among all real estate players in the market to the detriment of consumers, saying that the code of conduct adopted by Credai indicated collusion among its members. The commission directed the investigation officer to probe the matter after observing that the conduct of Tulip and other members of Credai indicated prima facie violation of the provisions of the Companies Act.”

Not only is the second half of the above quoted stanza factually wrong due to the reasons mentioned in point one, but the very basis of the Complaint/Information as stated in the first half of the stanza is questionable. After all, as per the numerous decisions of the Commission itself, Collective Dominance is presently not recognised under the Competition Act. Furthermore, as the Article creates an impression that these developers are involved in a Cartel through C.R.E.D.A.I., to address this argument, it cannot succeed as the requisites of Section 3(3) of the Act can’t arise and be met in the present case. (There is a reason why all Information’s have been filed under Section 4 of the act.)

I look forward to any form of of clarification or even a correction against me to any and all my doubts. After all, I am purely going by the newspaper report and there is always the possibility that I may have missed something during my analysis.

Is The Noose Tightening ??

Is the C.C.I. noose slowly tightening around Google ?? It sure does seem that way. The C.C.I. recently admitted another case against Google, and will probably club the Information with the ongoing investigation in the BharatMatrimony Case and the C.U.T.S Information Case. Speaking of BharatMatrimony and C.U.T.S., Google’s woes have risen with it being fined one crore for non-cooperation in the ongoing D.G. investigation.

So why is it facing so much difficulty in India ?? Probably because it may not be innocent after all. Not to express opinion on the merits of the case, but it is a fact that Google hasn’t exactly won any of the competition law cases filed against it across the world. Both the E.U. investigation and F.T.C. investigations were closed with settlements, which one can’t exactly count as a victory. All Google did was make certain commitments to the two bodies and consequently changed their programming to suit the settlement. It can’t do that in India, there being no provision for settlement/compromise of cases in the Competition Act, 2002. In fact, Google has lost a case against it’s Adwords programme in Australia, which has probably bolstered the hopes of those who feel discriminated by Google Adwords.

People may believe that I am against Google, considering how much I write about it (and according to many, against it). Rest assured, one could not be farther from the truth. In fact, I am one of Google’s biggest fans, but more on this later in another post which I have planned.