The Law On Network Neutrality.

This was one of my earliest blog posts (and also my first post on the India Law and Technology Blog). Unfortunately, the ILTB recently encountered a problem because of which the posts are not accessible, which is why am once again posting it verbatim here. At the time when this was first written, most people did not even know about Network Neutrality, let alone care for it, and it is heartening to see the debate finally reach Indian shores:

“I recently participated in a well known moot court competition on cyber and technology law, the problem for which this year was based on issues pertaining to network neutrality. To summarise the problem in a few words, a domestic Internet Service provider, in collusion with an international Internet service provider, had started providing services in the developing country (the economic condition of the country, especially the status of the telecommunication sector, similar to that of India) which over time was alleged to be derogatory in quality and in contravention to the principles of network neutrality. The service provider also later released a fair usage policy plan which severely limited free unlimited internet access (only 10 GB) despite consumers paying for an unlimited broadband internet access service.

As petitioners, we were not facing any difficulty in conclusively proving that the policies of the service provider were, without a doubt, in violation of the “agreed” principles of network neutrality. A bigger challenge we faced was trying to prove how this was legally wrong and why exactly was the service provider liable in the first place!! After all, even if assuming they had violated the principles of network neutrality, it is a fact (and a very irritating one at that for a lawyer/mooter) that there presently exists no specific legislation, rule, bye-law, etc. which governs the principles of network neutrality and their violation. (If one wishes to site the recent 2010 FCC order on network neutrality, it should be pointed out that the validity of the order is itself questionable in light of Comcast v. FCC. The rules shall be discussed in detail in a separate post). At any rate, there is no law in India to prevent the violation of the principles of network neutrality.

Now in situation such as the above, there is only one sensible path which any decent lawyer shall take in order to substantiate his case with law. And we, believing ourselves to be decent mooters, also decided to do the same. We decided to show the violation of the principles of network neutrality also led to a violation of the fundamental rights of various stakeholders in the internet broadband service.

What is however, surprising is that, as far as we are aware, no other team raised this issue before any bench at any point of time during the duration of the competition, including the teams who made it to the finals (one of the teams came close, but on a careful review one realised that they were taking a different approach to the issue and not one pertaining specifically to the violation of fundamental rights.)

When one realises that one has raised such a unique issue, one feels proud at having taken a path so different from those trodden by others. Or, atleast in my case also starts feeling apprehensive as to whether we raised a flawed contention before the court. Therefore, my intention in typing this post is not only to express by views regarding the law on network neutrality, but to also initiate a discussion on them and more specifically, on how a violation of the principles of network neutrality may result in a violation of the fundamental rights of citizens.

To post specifically, we contended that the violation of the principles of network neutrality resulting from the impugned acts of the respondents resulted in the violation of the fundamental right of websites, viz. the right to trade and occupation of all domestic websites and other start-ups [A], the right of the consumers to choose [B], and the citizens right to impart and receive information [C]. Below is a detailed description of our argument on the above issues, appropriately altered for this blog from the brief. However, the arguments being intrinsically linked to the statement of facts itself, it is admitted that certain portions have been taken verbatim from the brief, and a copy of the problem has also been attached for reference.

A. Violation of right to trade and occupation of the petitioners, other websites and applications on the Internet.

‘Trade’ has been defined by the Supreme Court of India in the case of Sodan Singh v. New Delhi Municipal Corporation[1] as including “any bargain or sale, any occupation or business carried on for subsistence or profit, it is an act of buying and selling goods and services”[2]. Occupation has also been defined as “that which principally takes up ones time, thought and energies, especially ones regular business or employment[3]. It is well known that a website provides services to its consumers in the form of the content or applications available on it. A website depends upon its ISP to enable its consumers to get access to itself. Thus, it logically follows that if the ISP indulges in practices that tend to favour one particular website over another, the website discriminated against loses its interaction with its consumers. Furthermore, due to the violation of the principles of network neutrality, in the long run, such impugned actions shall have the consequence of reducing the amount of innovation in the markets for applications, content and portals at competitive costs to the society[4].

Taking into account the absence of sophisticated technical knowledge about the working of the Internet and the technical intricacies involved in its functioning, consumers are more than likely to put the onus of non-access to a particular application upon the website itself, rather than on the ISP. The ISP may also encourage this as was the case in Comcast v. FCC[5]. This results in a substantial loss of goodwill for the specific application or website among the consumers and individual subscribers.

The above described consequences shall ultimately result in an infringement of the right to trade and occupation of websites and Internet applications.

Furthermore, such practices if allowed shall result in the monopolisation of the network by ISP’s under the garb of claiming a right to practice their trade by blocking certain websites and applications in order to promote either their own Internet applications or other Internet applications favourable to the ISP, further resulting in an infringement of the rights to occupation and trade. Any arguments claiming to rebuff this conclusion as exaggerated shall fail as history has shown a poor track record for last – mile facilities based competition.[6]

B. Infringement of the consumer’s right to choose.

“Article 21 is the heart of the Constitution. It confers right to life as well as the right to choose[7]”. Furthermore, the foremost right of a consumer is to choose from amongst a range of products and services. The consumer’s right to choose is also enshrined under Sec. 6 of the Consumer Protection Act, 1986[8], which states that the consumer has the “the right to be assured, wherever possible, access to a variety of goods and services at competitive prices[9].

In the present case, the impugned actions of the respondents resulted in the denial of the said right to the individual consumer or subscriber of the broadband service as individual subscribers were unable to freely access Internet applications and websites of their choice. Websites like musicforum.com, movieforum.com, et al (members of the group of petitioners) were free and consumers would not have had to bear any costs to view the content of these websites. The content on both websites being similar, it is safe to assume that consumers would prefer the free websites to the paid ones. By disabling its users from accessing the free sites and applications, the respondents infringed upon the individual’s right to choose and to access competitive services of their choice.

C. Infringement of citizen’s right to receive and impart information.

It has been observed by the Supreme Court of India in the case of Secretary, Ministry of Information and Broadcasting v. Cricket Association of Bengal[10] that “the freedom of speech and expression includes right to acquire information and to disseminate it…it is the best way to find a truest model of anything, since it is only through it, that the widest possible range of ideas can circulate…The right to communicate includes right to communicate in any media that is available whether print or electronic or audio-visual.”[11] Further, it has also been observed that free speech is the foundation of democratic society.[12] A free exchange of ideas and dissemination of information without restraints are the basic ideas of free society.[13] A citizen has a fundamental right to use the best means of imparting and receiving information.[14] Network neutrality essentially protects this free speech right.[15]

It has also been recognised by the Supreme Court of the United States that the potential for abuse of this private power over a central avenue of communication such as the Internet cannot be overlooked.[16] The application of the right of the freedom of speech has also been recognised as applicable to the Internet and cyberspace.[17] Any restriction on such expression on the Internet could result in the “beginning of the end of the Internet as we know it.”

In the present case, the respondents arbitrarily without any justifiable cause degraded the performance of certain websites, rendering it virtually impossible for individuals to communicate and interact via the medium of their Internet applications. The problems arising for individual subscribers regarding the popular social networking site Spacepage.com (similar to facebook.com) are particularly troubling in light of the importance of this site for its users as it has come to dominate human social life, with more than 500 million users across the globe. Furthermore, they actively prevented individual subscribers from downloading legally available movies and games, thus resulting in an obstruction to access legal media to further disseminate information and also preventing further interaction with their peers on the Internet through such sites. This denial and restriction of access results in an infringement of the individual’s right to information[18], thus resulting in a violation of freedom of speech and expression of the individual subscriber and consumers.

[1] (1989) 4 SCC 155

[2] ¶ 27, Also see State of Bihar v. Harihar Prasad Debuka, AIR 1989 SC 1119

[3] BLACK’S LAW DICTIONARY 1079 (7^thed. 1999)

[4] See Barbara Van Schewick, Towards an Economic Framework for Network Neutrality Regulation, 5 J. ON TELECOMM. & HIGH TECH. L. 329 (2007). Also see Timothy Woo, Network Neutrality and Broadband Discrimination, 2 J. ON TELECOMM. & HIGH TECH. L. 141(2003) and Jon N. Peha, The Benefits and Risks of Mandating Network Neutrality and the Quest for a Balanced Policy, 1 INT. J. COMM., 644 (2007)

[5] 600 F. 3d 642 (D.C. Cir. 2010)

[6] Trevor R. Roycroft, Economic Analysis and Network Neutrality: Separating Empirical Facts from Theoretical Fiction, available at http://net.educause.edu/ir/library/pdf/EPO0652.pdf (last visited 3^rd Jan., 2011)

[7] Smt. Har Naraini Devi v. Union of India, WP(C) 2887/2008, available at http://courtnic.nic.in/dhcorder/dhc_case_status_list_new.asp (last visited Feb. 3, 2011)

[8] CONSUMER PROTECTION ACT, 1986, No. 68 of 1986

[9] § 6(c), CONSUMER PROTECTION ACT, 1986, No. 68 of 1986

[10] (1995) 2 SCC 161: AIR 1995 SC 1236

[11] Supra, ¶ 11

[12] Union of India v. Motion Picture Association, (1990) 6 SCC 150: AIR 1999 SC 2334

[13] Ibid

[14] Ministry of Information and Broadcasting v. Cricket Association of Bengal,(1995) 2 SCC 161, ¶ 24

[15] Moran Yemini, Mandated Network Neutrality and the First Amendment: Lessons from Turner and a New Approach, 13(1) VA. J. L. & TECH. 1 (2008)

[16] Turner Broadcasting System Inc. v. F.C.C., 512 U.S. 622, 657 (1994)

[17] Reno, Attorney General v. American Civil Liberties Union, 521 US 844 (1997)

[18] State of U.P. v. Raj Narain, AIR 1975 SC 865

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)

I.C.N. Merger Workshop to go Online !!

In an excellent initiative by the C.C.I. (especially for the “aam aadmi” bourgeoisie like us who can’t get in !!), the Commission will be broadcasting the sessions of the I.C.N. Merger Workshop, 2014, which starts from tomorrow, on an Official Youtube Channel created exclusively for the Conference.

It is still not entirely clear whether the entire event will be broadcast live or only the relevant speeches by the speakers, but either way, it a great way to finally get a chance to listen in on the conference.

The link to the channel can be found here.

I.C.N. Merger Workshop, 2014 – Delhi (1st and 2nd December, 2014)

“The 2014 I.C.N. Merger Workshop will be hosted by the Competition Commission of India (C.C.I.) under the auspices of the I.C.N., and is a continuation of the series of agency-led conferences that began in 2002. During the two-day Workshop, discussions will focus on the role of international cooperation in merger enforcement. The workshop will take stock of the extant mechanism for international cooperation between competition agencies in merger enforcement and focus on building an effective framework for international cooperation in the areas of merger remedies, and outreach initiatives in the context of merger control.”

For details, see here.

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.

NLSIU Certificate Course on Competition Law and Practice.

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.

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.

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.