Anti-Competitive Agreements – Page 5 – Indian Competition and Anti-Trust Blog

We were planning a detailed post with a critical analysis on the Department of Justice (DoJ) complaint filed against the five publishers (Hachette, Penguin, Simon and Schuster, Macmillan and Harper Collins) alleging their agreement with Apple to be anti-competitive, but unfortunately, The Economic Times (ET) beat us to it !! 🙂

Being an excellent article, we would like to only add to what Avinash Celestine has written in his article.

What we fail to understand is that as publishers, the copyrights to the E-Books, be it on Amazon or Apple, are owned by the publishers themselves. Why did they not simply negotiate better terms with Amazon on wholesale prices on E-books ?!?! Also, as of now, they don’t really have a lot to complain about regards pricing, as per this blogpost, which claims that publishers may ultimately end up earning approximately seven dollars per E-Book copy “sold” (this is primarily due to the new agency model which publishers forced Amazon to implement, but more on that below.)

Also, if they were so concerned about the consequent fall in wholesale and retail prices of print books, why did they enter into the E-Books market in the first place ?!?! The publishers are themselves also partly to blame for there conundrums and add to that they decide to counter it by digging their own graves even deeper through an agreement with Apple. (this is the exact sentiment expressed by another blogger involved with the publishing business). Britannica realised that whether the organisation or customers liked it or not, it was time to go digital. The publishers should have learnt the same. They should have made a choice. In fact, to quote Jorge Cauz, president of Encyclopedia Britannica, Inc.

“print may not completely vanish from the market, but I think it is going to be increasingly less important. Many publications will never have a print analog and will only be printed on digital formats.”

Also, the Apple-publishers deals seems to be a classic case of a corporate panic attack with adverse consequences. Publishers should have realised that despite all the hype around E-Books, the fact remains that hard copy books will never really go out of fashion. Libraries will continue to buy them for quite some time. People like the author himself (who does not own a Kindle and is not even interested in getting one) prefer hard copy books over E-Books any day and always will. There is always a certain special comfort which one derives from actually holding a paper book and to be able to physically turn the pages with your fingers. granted, their demand shall fall as compared to today, but the losses could have easily been recouped through a better deal with E-Book retailers.

Which bring us to the other side of the story, which is exactly what publishers did in the agreement with Apple. Therefore, how exactly is it anti-competitive ?? After all, some would even say that Amazon was playing dirty, so the publishers decided to play dirty as well. This is probably the reason why Apple and the publishers who have not settled are willing to fight it out. The problem lies in the fact that they later used this agreement to force Amazon to do the same as well, i.e., sell the books under the exact same condition as Apple, effectively leading to the abuse of a re-emerged dominant position in the E-Book market.

It is intriguing how Amazon, which isn’t exactly innocent itself, has managed to gain the most out this entire quagmire and has largely escaped legal censure. However, in conclusion, we would like to stress on the fact that in a way, the reason for such disputes is because of the media revolution which we are experiencing right now on a daily basis. Laws are unfortunately till a large extent still ambiguous, with situations and cases as we are facing today never having been predicted when they were enacted, and it is safe to assume that such disputes shall arise for quite some time to come till one gains clarity. Till that extent, it really isn’t anybody’s fault. Not Amazon’s. Not the publishers. Not Apple’s.

If the CCI wanted to inaugurate its adjudicatory functions with a bang, well then it certainly did!! Though looking back, they probably would have preferred a less noisy cracker (read: controversial) first order.

In the matter of Neeraj Malhotra v. Deutsche Bank and Ors., the CCI analyzed the issue of whether pre payment charges levied on customers by banks and other home loan institutions were an anti – competitive agreement and resulted in an abuse of dominant position. In its order, the CCI reached the conclusion reached the conclusion that such charges are not anti – competitive and that there has been no abuse of their dominant position by the institutions.

Specifically, the following issues were framed before the commission:

Whether there is an agreement amongst the institutions to impose changes?
Whether there is an appreciable adverse effect on the market due to the levying of charges?
Whether there is an abuse of dominant position by the institutions?
Whether the changes levied impose an additional cost on customers?

I personally feel that the last issue was redundant in the present matter. However, for the sake of discussion, I shall proceed on the assumption that it is a valid question which was raised.

To summarise the order, the majority opinion (the order was decided by a majority of 3:2) rejected the contention that the institutions acted in concert and had an agreement to impose charges. It also observed, as a continuation to the above issues, that the levying of charges on the consumers has no impact on the relevant market, i.e. the home loan market in India, thereby restricting competition. On the issue of abuse of dominant position, the CCI noted that no single institution in India has the capability of operating independent of the competition or affecting consumers in his favour. As regard the last issue, the CCI observed that the institutions do suffer a cost when a borrower opts to pre – pay his loan. It felt that it would not be correct to look at the matter only form the point of view of the consumer and that the interests of the consumer cannot be protected at the cost of the service provider. The full text of the order can be found here.

At the very outset it is submitted that I firmly disagree with the views expressed by many that the CCI should look exclusively at the effect of an agreement on the competition within the relevant market and not express opinions or render judgements on a consumer impact criterion. Other than the well known fact that anti – trust mechanisms and consumer protection are intrinsically connected, the preamble of the Act itself provides for the protection of the interests of consumers in the relevant market and this intention is further enforced on a bare perusal of Sections 3, 4 and 18, all of which provide for consumer interest to be taken into consideration.

Coming to the order itself, there does not seem to be any fault in the reasoning of the majority Bench. However, what is interesting is the fallout which this order may have for the working of the commission in the future. More specifically, in the application of the rule of reason to decide whether or not a particular agreement is anti – competitive in nature. While in the present matter there may not have been conclusive evidence to prove the existence of an active cartel, one can wonder where and when the commission intends to draw the line on application of the above mentioned rule. It seems to have impliedly, through this order, given its assent to agreements which may appear broad in nature and which may not be entered into with a per se intention to form a cartel and to abuse a dominant position, but which may, consequently result in an adverse effect to competition in the relevant market, i.e. in the present case, the agreement to levy charges, as long as the imposition of such charges do not give the appearance of an active coordinating cartel. One may take the argument that by applying this interpretation of the rule of reason, many anti – competitive agreements may circumvent inspection as they may appear to be harmless for the relevant product/service market. However, taking into consideration the infancy of Indian competition jurisprudence, it is best to simply wait and watch to see the after effects of this order.