A Comment on the Walt Disney (South Asia) and UTV Combination Order

At the very outset, it should be mentioned that the speedy clearance for the proposal of combination of The Walt Disney Company (South Asia) and UTV Software Communications Limited is encouraging, despite the apparent staff shortage at the CCI. However, while I find no reason as of now to oppose the merger, the reasoning of the Commission on a certain ground is questionable and does lay some credence to the criticisms leveled against the Commission on the reasoning of its orders.

The Commission seems to have relied heavily on the fact that Disney is primarily an English broadcasting medium whereas UTV is a Hindi broadcasting medium. Such reasoning is unsound and questionable. The language of communication in any merger of broadcasting or media companies is irrelevant. What is relevant is the impact which the merger would have on the entertainment industry, and consequently, the audience as a whole. Assuming hypothetically that the merger would result in dominant position in the media entertainment market for Disney, the language of broadcasting would not matter in case it tried to abuse its dominance. If Disney had to do so, it would do it by asserting itself in the industry as a whole, not in the Hindi or English segment specifically. In other words, the ‘relevant market’ to be determined should not be based on the language of broadcasting but rather the entire broadcasting industry as a whole.

The Order can be found here.

Why the Complaint filed against Apple Inc. before the CCI shall fail ??

It’s certainly not ethical to comment upon the matter which is presently sub-judice (even if you’re not a party to the suit), but honestly, I just couldn’t help it!! 😛 Partly because I was skeptical of the recent complaint which has been filed before CCI against Apple Inc. for its allegedly abusive market practices of allowing its iPhone to be bundled with only two service providers, namely, Aircel and Bharti Airtel. However, while the audacity of an individual to go up against a Transnational Corporation is to be admired, I must say, with a comparatively high degree of confidence, that the complaint shall most probably be dismissed on the following grounds:

1. According to reports by Bar & Bench and Legallyindia, the complaint has been filed under Section 4 of the Competition Act. (Abuse of Dominant position). However, there is no evidence to show that Apple Inc. even has a dominant position in the relevant market (India). Let alone abuse it. According to data on Fonearena.com for the year 2009 (unfortunately, the latest I could find), and quote:

“Over 100 million mobile phones were sold in India in 2009 according to a research firm IDC India. What’s surprising is that Nokia still has a lion’s share of the mobile sales at 54.1%. Samsung Mobiles has 9.7 % share and LG has 6.4 %…. There were more than 28 new handset brands which started selling handsets in 2009 and these new players account for over 12.3% of handset sales which is quite significant…..The local players account for 17.5 % of sales now. These include Micromax, Karbonn Mobiles, Spice Mobiles Ltd, Videocon Industries Ltd and Lava International Ltd.”

Therefore, effectively, it is only Nokia according to this data which stands any chance of abusing its dominant position. Assuming there has been a change in these numbers in the year 2010 till date, there is no reason to believe that the change could have been substantial enough so as to suddenly allow Apple Inc. to dominate the market as per its whims and fancies.

2. An argument may be raised that the relevant market in this case would in fact, not be the regular handset market, but rather, the narrower Smartphone market. However, it is doubtful whether the Commission shall accept such an argument. But to create no prejudices, a good authoritative lawyer could convince the Commission on this point.

3. What the Complainant has alleged in his/her Complaint is in fact a case of “tie-in arrangements”, “exclusive supply agreements” and “refusal to deal” under Section 3. Therefore, one fails to understand exactly why the complainant has alleged a violation of Section 4. Advice to Complainant: Get yourself a better lawyer!!

4. Arguendo, assuming that the complaint had alleged the violation of Section 3, it is extremely doubtful that it is violation of Section 3 as it is Apple itself which has designed the iPhone and all its applications and services. Apple Inc. controls the entire process of the manufacturing and distribution of the iPhone, and all applications can only be accessed and downloaded via the iStore because they are designed by Apple Inc. itself. Those that are designed by individuals other than Apple must also be added to the iStore database as Apple products run on a separate platform (Macintosh), Apple has traditionally always kept a “closed system”, as it is called in tech jargon to try and maintain the exclusivity of its products. (In fact, this is the primary reason why one finds far fewer virus programs attacking Mac PC’s and Smartphone’s, another shot in the arm for Apple).

5. Lastly, in both the above cases, Apple Inc. has not in any manner prevented its competitors from continuing their business. There is no evidence to show that any of its policies results in denial of market access in any manner to any other handset manufacturer which would not qualify as regular competition. In fact, market indicators clearly show that presently, there exists robust and healthy competition in the Mobile Market in India.

As regards the iPad, I shall reserve my opinion as I was unable to find any conclusive survey on the market share of Apple in the Tablet market in India.

Google and its Anti – Trust Woes

On 31^st march, 2011, Microsoft Corporation filed a formal complaint with the European anti – trust regulators about Google’s abuse of dominant position in the European internet market and against various anti – competitive practices engaged by it in the relevant market.

This is isn’t exactly the first time Google has been accused of violating anti – trust laws around the globe. In fact, Microsoft along with two other rivals had only last year lodged another complaint with the EU, a matter currently under investigation. Over and above this, in March this year, a U.S. District court found an agreement between Google and the Authors Guild and Association of American Publishers for the scanning and digital redistribution of books in its ebookstore to be in violation of U.S. anti – trust laws and asked the parties to renegotiate the agreement. Then again, in 2009, tradecomet.com filed a complaint alleging that Google manipulates its auctions on its “adwords” program to favour certain advertisers like business.com over others, again violating anti – trust laws. And before that, in 2008, the U.S. department of justice launched an investigation into the two-week test agreement between Yahoo Inc. and Google to deliver relevant Web advertising from Google Inc. alongside its own search results. And this list is by no means exhaustive.

The question is, why Google?? According to Susan Wojcicki, Senior Vice President of Product Management and Vice President of Engineering at Google, writing on the company blog:

“Given our success and the disruptive nature of our business, it’s entirely understandable that we’ve caused unease among other companies and caught the attention of regulators.”

Till a large extent she is right. But a few of these complaints and suits have raised some very genuine and relevant questions against certain trade practices followed by Google Inc.

In fact, even in India, a complaint was registered against Google before the CCI on, again, its “adwords” program. In Eximcorp India Pvt. Ltd. v. Google India Pvt. Ltd. (Case no. 68/2010), the complainant/informant, a subscriber to the above mentioned service, alleged that the business practices of Google for such service were discriminatory in nature, and an abuse of dominant position. It also alleged that the bidding process introduced by Google to place advertisements on “adwords” was non-transparent. While the facts of initiation of the complaint were not directly pertaining to an issue concerning competition law, what is surprising is that the commission in a three page decision concluded that there was no prima – facie evidence to make out a case for further investigation by the Director General into the matter. The issues raised were ones directly pertaining to competition law, and one would have expected the commission to take closer look at the matter taking into consideration Google’s reputation around the world against anti – trust law. Makes one wonder whether the CCI is even aware of the various suits and complaints filed against the most dominant search engine company in the world!!

CCI Banking Cartel Order – Where do we go from here ??

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.

And I Thought My Jokes Were Bad….

Much has been said about the notification empowering the Competition Commission with its full merger control powers (as usual, I am late in publishing this post. I really must learn to be more punctual with this blog). To summarise, “the Central Government hereby appoints the 1st day of June, 2011 as the date on which Sections 5, 6, 20, 29, 30 and section 31 of the said Act shall come into force.”

However, the same notification also exempts, “in public interest”, the “group” exercising less than fifty percent of voting rights in the other enterprise from the provisions of Section 5 of the Act for a period of five years. At the same time, the Central Government has also again, “in public interest”, exempted an enterprise, whose control, shares, voting rights or assets are being acquired has assets of the value of not more than 250/- crores or turnover of not more than 750/- crores from the provisions of Section 5 of the said Act for a period of five years.

While what construes as “public interest” is subject to interpretation by the reader, what is not subject to interpretation is the fact that the exemptions more or less render the notification of the above mentioned sections, particularly Sections 5 and 6, worthless and as good as not having been notified at all. In fact, when read carefully, it is evident that the exemptions are in fact, clearly NOT in public interest.

Firstly, looking at the exemption of groups, it is evident that consequent to the exemption, any such “group” as defined in the act can effectively acquire voting rights in an enterprise through stock purchase, thus controlling the company. Since the term “group” has been used under Section 5(b)(ii) of the Act, the purpose of this part, i.e., to prevent combinations of or among enterprises engaged in production, distribution or trading of a similar or identical or substitutable goods or provision of a similar or identical or substitutable service, remains unfulfilled in preventing horizontal mergers inhibitory to competition in the market and the growth of a dominance of a single group in the relevant market.

Secondly, the exemption relating to acquired enterprises in even more disastrous in consequences than the previous one. It blatantly allows a larger enterprise and one endowed with considerably large pool of resources (which most large enterprises without a doubt have) to buy out any other comparatively smaller venture which has the potential to or is already building up a competitive position in the market. The acquired enterprise having been exempted, such acquisitions cannot fall under the regulatory jurisdiction of the CCI.

An argument may be raised that any such merger or acquisition would still be subject to the procedure of approval under the Companies Act, 1956. However, with all frankness, taking into account real practice, the procedure laid down under the above act under Section 372 is not an effective mechanism to check or determine the effect of an acquisition or merger on competition in the markets. Sanctions are usually granted with little objection, and the procedure relates more to internal formalities within the companies rather than regulatory external control.

On a sarcastic note, maybe “public interest” means not the interest of the citizens of India and the Indian market, but rather the “public” government.

Jurisdiction ?? Of course we have jurisdiction ?!?! – Part 2 ( A Post Script to Part – 1)

I realised after re-reading my previous post that I failed to answer certain questions which I may be asked by readers. :

1. Why have I not commented on the currently sub – judice matter before the Delhi High Court challenging the jurisdiction of the CCI in favour of the PNGRB ??

2. Why have I not commented on the conflict of powers and jurisdictions between the CCI and COMPAT, especially after the Judgement of the Supreme Court in CCI v. SAIL ??

To answer these questions. :

1. Others far more learned than me, including Vinod Dhall, have already commented on the issue (See http://www.livemint.com/articles/2011/01/23232944/Competition-watchdog-faces-fre.html) and so I have decided to reserve my opinions on the matter till the conclusion of the suit.)

2. The previous post specifically focused on the conflict of jurisdictions faced by the CCI/COMPAT against other subject specific jurisdiction of other regulatory bodies and Tribunals. I shall be commenting on the possible fallouts of the judgement on a separate post in due course.

Hope this suffices. Please feel free to post any other questions in the comments.

Jurisdiction ?? Of course we have jurisdiction ?!?! – Part 1

A common question that has often perplexed lawyers and jurists alike is how to resolve the conflict of jurisdiction that has arisen and which is more than likely to arise in the future between the Competition Commission of India and various other subject specific Tribunals in India. The origin of the issue is very simple to analyse: you cannot under any circumstances have exclusively specific subject jurisdiction for Tribunals. It has been tried around the world and has always failed. What is more difficult is its resolution.

Abroad, regulators rarely encounter this problem, for the simple reason that they don’t allow themselves to !! They prefer not to raise their hackles at every other regulator who may occasionally (and usually accidentally) let his dog run into their backyard. Coordination is the key to an effective implementation of laws and foreign Regulators generally seem to display a remarkably high level of maturity between themselves to resolve disputes related to conflict of jurisdiction. ( A classic example can be that of the FTC and FCC of United States).

Sadly, immaturity and inflated ego’s are two very prominent features of the Indian Bars and the executive, and so consequently, it extends to all Regulators, whether independent of governmental regulation or not, so it is doubtful considering the present state of affairs, whether they can arise a non adjudicatory resolution to the dispute.

The reason this post part has been titled as Part – 1 is because I intend to in the long run derive the correct legal jurisdiction solution between the CCI/COMPAT and all other tribunals and regulators over time as i get time for a detailed analysis and research. in this post, I shall focus only on the inherent conflict of jurisdiction between the TRAI/TDSAT and the CCI/COMPAT.

The issue was raised before me first during an internal moot problem prepared by a senior alumni of my Law School. I confess, I failed to find and answer to the question (specifically, what gave the TDSAT the right to pass a notice on the COMPAT, and whether they have and overriding jurisdiction over the COMPAT ??), and at that time all I could do was to pathetically avoid the question through dodging tactics and beating around the bush. (Surprisingly, the judges were impressed with it, I personally was disgusted with myself with what i considered as inadequate research). I later met the drafter of the problem and asked him for an answer to the question. He claimed that the TDSAT had a higher jurisdiction, and though I understood and accepted his logic, I admit, I was not convinced. I can now proudly claim that I have finally found the answer to the question (albeit, maybe a bit too late) and I can say with full conviction that the COMPAT has a higher authority. In fact, one will realise that there can arise no opportunity for a conflict of jurisdiction.

Section 14 of the TRAI Act, 1997 states in its proviso as follows:

“….Provided that nothing in this clause shall apply in respect of matters relating to -(A) the monopolistic trade practice, restrictive trade practice and unfair trade practice which are subject to jurisdiction of the Monopolies and Restrictive Trade Commission established under sub-section (1) of section 5 of the Monopolies and Restrictive Trade Practices Act, 1969….”

At the same time, Section 8 of the general clauses act also states:

“Where this Act, or any (Central Act) or regulation made after the commencement of this Act, repeals and re-enacts, with or without notification, any provision of a former enactment, then references in any other enactment or in any instrument to the provision so repealed shall, unless a different intention appears, be construed as references to the provision so re-enacted.”

Reading both these provisions together, one can derive a clear interpretation that since the Competition Act, 2002 repeals the Monopolies and Restrictive Trade Practices Act, 1969, a direct interpretation that arises is that the TDSAT is exempted from handling matters that the CCI and COMPAT would be competent to handle under their jurisdictions (viz. anti – competitive agreements, abuses of dominant position, combinations). accordingly, it may, under section 21 of the Competition Act, make references to the CCI regarding any matter related to telecommunications or broadcasting involving anti – trust issues.

Personally, I feel that though such clauses do clarify such vexatious questions inflicted upon various regulatory authorities and tribunals, what in fact statutes should also do is encourage harmony and coordination between the these regulatory authorities. I am happy to note that the competition Act does try to do so through section 62 which clearly states that the application of laws is not barred and that the provisions of the act are in addition to, and not in derogation of the provisions of any other law for the time being in force.