Who Would Have Thought ?!?!

Apple has allowed developers to take payments outside the App Store !! Voluntarily without a Judgement or Order or any other form of legislation coercing them !! Who would have thought this day would come. 🙂 Atleast I admittedly didn’t.

It’s part of a settlement of course, so perhaps they saw the writing on the wall that the happy music was about to stop. But it still is a big stand down from Apple, a company known to steadfastly contest all suits and claims challenging its walled off ecosystem.

To quote from the report itself:

“The company is “clarifying that developers can use communications, such as email, to share information about payment methods outside of their iOS app,” Apple said in a statement.

Critically for Apple, the settlement excludes more significant App Store changes that were sought by some outside developers and legislators. The company is still requiring developers to sell their apps — as well as in-app items and subscriptions — using Apple’s payment system, which takes between 15% and 30% in commissions. Apple reduced the cut to 15% for all developers that generate $1 million or less annually last year. On Thursday, it committed to continuing that policy for the next three years.

The settlement also doesn’t require Apple to allow third-party app stores or the so-called sideloading of software. And the company doesn’t have to further reduce its revenue share.”

According to another report, “Apple also will set up a USD 100 million fund that will pay thousands of app developers covered in the lawsuit sums ranging from USD 250 to USD 30,000. App developers will get more flexibility to set different prices within their apps, expanding the options from about 100 to 500 choices.”

But the stand down doesn’t end here, shifting to news closer to home, South Korea’s National Assembly passed a bill last Tuesday requiring Google and Apple to open their app stores to alternative payment systems in South Korea. The move will definitely have a negative affect on the commissions on digital sales for both companies. Essentially, its an amendment to the Telecommunications Business Act, with the Korea Communications Commission, the Country’s media regulator, with the powers to enforce it.

And now right at home, we even have a Complaint having been filed before the C.C.I. as well !!

The big question – will these lead to reduced prices for consumers in the long run. My personal opinion – No. They’ll remain stagnant. Almost ninety percent of the Apps on both the stores are anyways free. The last ten percent, which comprise of paid as well as in App purchases, have not shown a trend of keeping costs low even when they were alternatives available to having to pay Google or Apple. The best example is Netflix, which has in fact been raising rates over time. Simply put, there are other factors besides an App Store/Play Store commission which determine pricing.

Information Manipulation: An Important Side Note of Network Neutrality

Freedom of Speech and prevention of a “walled garden” have been one of the prime arguments for network neutrality since the inception of the contest. Expanding on this argument, a side note to also be taken into consideration is the information manipulation which has come to be highlighted since the election of Donald Trump, where the particulars of the information “allowed” to be brought in front of you “help” you to make “your” decision accordingly.

Facebook can be an excellent example to help understand this argument for two reasons. Firstly, it came up with the extremely controversial (but still operational in some countries) FREE BASICS programme. Secondly, it is without a doubt one of the, if not THE most accessible websites on the internet (Google may be the only serious rival, but since Google in my opinion can today be considered a full fledged platform integrated over multiple websites as well as the Android OS rather than just the regular Google website, we’ll stay out of this debate for now and keep it simple.)

Facebook has of course been facing flak in the U.S. over its alleged contribution to last years presidential election, but what it actually more of a worry is the abuse of it’s service in communities outside the U.S., particularly Asia. We’ve partially discussed such issues before on this Blog (see here and here), but the latest example is that of Myanmar, where the rise of Anti-Rohingya sentiment seems to have coincided with a huge boom in the use of social media, a large chunk of which is attributable to Facebook itself. Why ?? Because in 2016, Facebook partnered with MPT, the State run telecom company, to give users access to its Free Basics Programme.

This is not to insinuate that Facebook is directly attempting to control the world and actively working with state regimes to incite hatred against minorities and in all fairness, the issue is excruciatingly complicated, but since Facebook dominates the Social Media space (along with Instagram and WhatsApp), the potential for abuse of its Free Basics programme becomes all the more potent. To quote from a recent article:

“Facebook is not directly responsible for violent conflict, of course, and viral
misinformation is hardly unique to its services. Before social media, there were email hoaxes and urban legends passed from person to person. But the speed of
Facebook’s growth in the developing world has made it an especially potent force
among first-time internet users, who may not be appropriately skeptical of what they see online.”

Fast Track Call Cab Pvt. Ltd. and Anr. v. ANI Technologies Pvt. Ltd., Case No. 6 and 74 of 2015

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There are certain cases in any area of jurisprudence in law, including competition law, which tend to make an individual mark of their own. This may be simply due to the parties involved, or because the cases involve seminal questions in law which would help clarify the legislation involved for future use, or because the ramifications (not necessarily negative) of the Final Order go beyond just the law involved, and into the arena of a change in the very economics or social structure of the system the case may question.

In my personal opinion, Fast Track Call Cab Pvt. Ltd. and Anr. v. ANI Technologies Pvt. Ltd., Case No. 6 and 74 of 2015 falls into this category and for all the reasons stated above.

My criticism of past Orders of the Commission through this Blog is well known, but this time, I must bring on record my appreciation. The Final Order is by no means perfect or maybe even completely legally sound in all aspects, but it does display not only the growing maturity of competition jurisprudence by the Commission, but also at least an attempt by the D.G. to not be content with a superficial investigation of relevant market dynamics.

Both Ola and Uber have already suffered enough regulatory troubles regards surge pricing and driver registration from various transport departments across the country, and though Ola has won this round, there will most probably be an Appeal. But the biggest fallout for Ola (and even Uber), which in my personal opinions has made it a pyrrhic victory, is that the D.G. and the Commission have extensively written about the below cost pricing strategies adopted by both companies. In fact, the D.G. has gone so far as to note that the significant market share of Ola or Uber has nothing to do with technological innovation but is rather the pure consequent of below cost pricing. Whether the companies like it or not, it is probable that both Ola and Uber will be prodded to bring down the revenue drain, not just by investors but also by competitors and various state departments as economically, a market providing services below cost can under no circumstances be considered an economically sound market, and creates potential avenues for future investigations by the Commission.

COLLECTIVE DOMINANCE BACK IN THE LIMELIGHT

An alternative argument which was raised by the Informants while objecting to the D.G. Report was that there is a possibility of two entities exercising dominance at the same time. The Informants claimed that the analysis of the D.G. pointed towards the presence of more than one dominant player in the relevant market. Furthermore, they submitted that the D.G. in its report had admitted the growth of both Ola and Uber was not the result of any technological innovation or efficiency but the result of a practice to charge substantially below the average variable cost. The Informants also quoted the observations of the Canadian Competition Tribunal in the Visa Mastercard Case, which noted that both MasterCard and Visa can individually possess market power in the relevant market. It was thus submitted that a conclusion of simultaneous dominance of Ola and Uber was not incompatible with the provisions of the Competition Act, 2002.

I have already on a number of occasions discussed Collective Dominance (See here, here and here) and how it is not presently recognised under the Act. The Commission’s reasoning is similar to what we have already propagated here and I have nothing new to add in this area.

However, for the fun of it, let us hypothetically presume that Collective Dominance was recognised under the Competition Act. Could Ola and Uber have been held liable for abuse of dominant conduct ?? I would submit the answer would still be a no.

Firstly, since the Uber investigation has been stayed by the Supreme Court, no finding or penalty could be imposed upon Uber. But beyond that, secondly and more importantly, is that Ola and Uber would never be able to breach the threshold for Collective Dominance under Competition Law, and to understand why one needs to look into the case of U.S.A. v. VISA Et al., 344 F.3d 229 (United States Court of Appeals, second Circuit.). Similar issues were raised against VISA and Mastercard. To summarise, the United States Department of Justice brought enforcement action against the two payment card networks and licensor of one payment card brand, alleging that governance duality between networks and networks’ exclusivity rules were agreements in restraint of trade in violation of Sherman Antitrust Act. Challenging the organizational structure of two of the nation’s four major payment card systems, the complaint charged that MasterCard and Visa U.S.A., which are organized as joint ventures owned by their member banking institutions,conspired to restrain trade in two ways: (1) By enacting rules permitting a member-owner of one to function as a director of the other (an arrangement the government described as “dual governance”) (Count I); and (2) by enacting and enforcing “exclusionary rules,” which prohibit their member banks from issuing American Express (“Amex”) or Discover cards (Count II).

The Court held that Visa U.S.A. and MasterCard violated the Sherman Antitrust Act by enforcing their respective versions of the exclusionary rule, barring their member banks from issuing Amex or Discover cards. The Court further held that Visa International, which owns the Visa brand, licenses it to Visa U.S.A., and exercises certain governance powers over Visa U.S.A., was liable for participating in Visa U.S.A.’s violation. Factually, it is important to note that a member of either the Visa U.S.A. or MasterCard network could also be a member of the other network. Thus a bank that was a member of Visa U.S.A.’s network and issued Visa cards could also be a member of the MasterCard network and issue MasterCard cards. On the other hand, both MasterCard and Visa U.S.A. had promulgated rules that prohibited their members from issuing American Express or Discover cards. Evidence was also cited that atleast three major U.S. issuer banks would have contracted with American Express to issue Amex cards in the United States but for the exclusionary rules.

In other words, in Visa Mastercard, there was active collusion between the two entities to limit market access to the other two competitors, whereas in the case of Ola and Uber, it is anything but !! Both companies are constantly at each other’s throats on pricing and volume of rides in the country. We are starting to see a cut back on the below cost pricing strategy, but only a continual market watch on the sector will help to gather enough data to understand the consequent effects, and it is too early to take a firm decision as of today. Since Ola and Uber have together effectively turned the market as one heavily based on network effects, strong competition and constant change in market share might be the norm between the two for some time to come.

POST SCRIPT: UBER IN INDIA

The Uber legal team would have been on their tenterhooks till this Order came out, and will be studying it closely (the investigation against Uber has been stayed due to questions of law regarding the powers of the erstwhile Competition Appellate Tribunal (COMPAT) and the matter is presently pending in the Supreme Court). The relevant market would obviously include Uber, and the D.G./Commission made a number of observations regarding the company, such as:

1. “…[i]n the first six months of 2015-16 (till September 2015), the D.G. noticed that while OP’s market share increased from marginally by 2% to 3%, Uber’s share increased at a faster rate i.e. by about 20%-22%.” [This is definitely due to a lower base rate.]

2. “It was further noted that from March 2015 onwards, Uber has maintained the second position. The D.G. also noted that from January to September 2015, Uber’s trip size registered growth of nearly 1200%, while OP’s growth has been about 63% during the same period.” [Same reason as above.]

3. “The D.G., thus, noted that backed by its marketing technology and logistics and financial support, Uber was able to successfully counter the pricing strategy of OP, and being able to sustain losses, which restrained OP from exercising market power in the relevant market. This was evident from the fact that similar strategy was followed by Uber and as a result, the gap in market share between OP and Uber narrowed down from 69% in January 2015 to 22% by September 2015.”

4. “Further, with the steady increase in Uber’s market share from 6 – 7% in January 2015 to 36-37% in September 2015, it could not be said whether OP would be in a position to hold on to its market share for a sustainable period for assessment of dominance in the relevant market.”

5. “Thus, D.G. opined that both OP and Uber have adopted ‘below-cost pricing strategy’. However, since the scheme of the Act only attracts the provisions of Section 4 when an incumbent is found to be dominant, the D.G. stated that OP can be said to have
indulged in abuse by way of predatory pricing, only if it is found to be dominant in the relevant market. Since OP was not found to be dominant, the D.G. concluded that OP did not contravene the provisions of Section 4 of the Act.” [Emphasis added]

6. “On the other hand, Uber, which entered the relevant market in 2013-14, expanded its network rapidly to account for nearly one third of the active fleet in the relevant market in 2015-16. In terms of annual number of trips, its share increased from 1 – 2% in 2013-14 to 30-31% in 2015-16.”

7. “…[U]ber, entered the relevant market in the year 2013 and garnered a sizeable market share in just about two years’ time. In terms of number of trips on monthly basis, its share increased from 0-1% in August 2013 to 36-37% in September 2015. Further, Uber showed a steady growth February 2015 onwards, with its share in terms of monthly number of trips having increased from 6-7 % in January 2015 to 36-37% by September 2015. Its entry as well as steady growth during the period of investigation shows that the market was evolving. While Uber’s entry, as the Informant has argued, did not dislodge OP during the period of investigation, OP’s declining market share post January 2015 reflects the competitive constraint posed by Uber and the fragility of leadership position in a dynamic business environment, as discussed earlier.”

8. “As a matter of record, in the present case, OP does not have an edge over all its competitors in terms of the size and resources. Interestingly, the investigation revealed that that Uber Inc., which is the parent company for Uber had a total capital investment of about 15 to 20 times of OP’s financial resources.” [The C.C.I. doesn’t seem to have made much of this, but it is important to note that “size and resources of the enterprise” and “economic power of the enterprise including commercial advantages over competitors” are two of the factors to be taken into consideration during an inquiry under Section 19(4)(b) and Section 19(4)(d) of the Act respectively.]

All this goes to show that Ola may owe Uber one for its victory, and also that Uber will be fully focused to ensure a favourable outcome in the Supreme Court to avoid the cross hairs of the D.G./C.C.I.

Online Competition and Offline Democracy

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Consumer Choice and Competition Law are devilishly heavy in terms of choice of literature, from the side of law as well as economics, and a collection of all books on the subject together can easily be used to create a specialised two floor (at least) library of its own. (which I would love, if I might add. :-))

The topic being so generic in phrase, it continues to evolve and grow as our own economy and society evolves and grows with every passing year, with the question of choice (and the use of Game Theory) continuously intriguing at every level of society and economy.

The next level of evolution of human society, after the invention of the modern internet (world wide web), has been its swift amoebic growth into the very fabric of our daily lives, and it is the consequence of this growth from a competition law perspective that Ariel Ezrachi and Maurice Stucke claim they look into and answer through their book Virtual Competition. They even go so far as to say in a blog post (and they may quite well be right) that the intertwining of A.I. and the internet into our daily lives has the ability to completely alter our thought process, including politically, and turn the definition of “Democracy” totally upside down.

Obviously, a self – confessed internet economy growth buff like me is more than eager to read the book (It’s available on Amazon India and not even very expensive, though the delivery charge sucks.) The Wall Street Journal already published a book review on it. And once I finish it, we should have one here as well. 🙂

T.R.A.I. Consultation Paper on Differential Pricing for Data Services (A.K.A.) What Has Now Become The Fight Over “Free Basics”. (Part – II).

Now coming to the the Scheme which has been grabbing all the attention in the mass media, which includes news and paid correspondence !! Frankly, don’t remember the last time I saw the kind of advertising and media blitzkrieg which Facebook has released on the Indian public to promote “Free Basics”. The past week has been a mixture of multiple full page advertisements in all major newspapers giving us an insight into “what Network Neutrality Activists Won’t Tell You”, “A First Step Towards Digital Equality” and “Support Ganesh: Support Digital Equality”. Some of Facebook’s tactics displayed in full the desperation of the omnipresent social networking website as well as the gullibility of the Indian (atleast online) populace. Mark Zuckerberg has himself become part of the PR overdrive in order to push support for what he genuinely seems to believe should be the next big leap in connectivity in India.

Now lets get two facts straight at the very outset. There is NO DIFFERENCE between “Free Basics” and “Internet,org”. “Internet.org” was a failure because it generated too much unexpected negative publicity for Facebook and the websites/organisations joining the initiative. This led to most of them opting out of the service, which is why Facebook decided to re-christen the programme and to push it through this time they decided to also launch the “Free basics – Digital Equality” campaign in order to generate some public support for the Scheme. So far, it has been an expensive campaign with little to show for it, except for a lot (allegedly 3.2 million as per facebook itself) of virtual verbatim blind click mails and signatures which Facebook claims is the “support” they have received from the Indian online community. [UPDATE: The T.R.A.I. has now stated that it considers these mails/signatures as a valueless opinion poll and are not an adequate response to the questions framed by it.] Secondly, it would be most unfair to not acknowledge the fact that “Free Basics” has the potential to be beneficial to the citizens of India, especially the unconnected parts of the country. However, as I outline below, the Scheme as it’s terms and conditions stand today, are more harmful for internet connectivity in the Country than the ancillary benefits which may accrue.

FACEBOOK CONTROLS EVERYTHING ON FREE BASICS/INTERNET.ORG

It is Facebook which acts as a guardian of the gate who will decide who enters the Free Basics platform and who doesn’t. Frankly, I am not comfortable with one entity exercising such overarching controls over a programme which it aims to spread itself throughout the country, and further throughout the world. Make no mistake, philanthropy aside, there are two major reasons why Facebook actively pursues “Internet.org/Free Basics”:- One, more eyeballs for the advertisements generated on its website as new users sign into Facebook. Second, for the shear amount of data it will generate for analysis through its user-base. Facebook is at the end of the day a business and while it is natural for a business to want to expand its customer base and generate higher revenues/profits, this cannot come at a cost of taking advantage of an individuals lack of literacy or understanding of how expansive the internet really is and attempt to keep him or her confined to select websites which have “conformed” to the standards set by Facebook. In simple terms, Facebook has no right to act as a hand holding teacher and “guide” people through a particular path. People must be allowed to understand that the internet is more than what they will see through “Free Basics” and choose for themselves what they wish to do or see on it, whether it be researching on new farming techniques or even be as voyeuristic as watching porn. Don’t get me wrong. Am sure the “Ganesh” in the Full page newspaper ads must have genuinely benefited, but did he have any idea that what he saw was just perhaps two percent of the accessible internet ??

Let me substantiate this with a real life example of what is happening in poorer parts of the world. Millions of Facebook users have no idea they’re using the internet !! A research survey, with a special focus on Indonesia and Nigeria where surveys were carried out, displays how people were not aware about the internet, but yet used to directly access Facebook, to the extent that in opinion polls a higher percentage would state that they had accessed Facebook, but a lower percentage would state that they had accessed the internet !! And do note, the article discussing the findings is dated 9th February, 2015 and states that the trends were noticed three years ago, when “Internet.org” was merely a concept in discussion and roll out had not even started. Imagine what internet connectivity could become with “Internet.org/Free Basics” implementation at its peak ?!?!

THE PROBLEM IS NOT PRESENT ABUSE. IT IS POTENTIAL FOR ABUSE

As of now, Facebook has stated that it has never rejected an Application which fulfill’s the qualifying parameters for developers on “Internet.org/Free Basics”. That’s fine for now, but what about the future?? Is Facebook willing to give a commitment that the “parameters” will always be broad and will never be to the detriment of a genuinely useful Application for the people?? No it won’t, not because it may or may not want to, but because it can’t !! The engineers at Facebook are not oracles to see the future, and what can be good or not got good or worthy or not worthy to be accessed by the Indian internet community cannot be subject to parameters laid down at a single given point of time, no matter how broad they may be. This will always be subject to the ever changing values of any given society and furthermore, to the ever important evolution of technology which in today’s furiously paced world is not just extremely hard, but downright impossible to predict. Anybody could come up with a technology or programme to give Facebook a run for its money. Can Facebook give an absolute guarantee in writing that such an Application/Programme would be allowed on Free basics?? I highly doubt it. (You can already see a potential for such abuse relating to an upstart Facebook rival “Tsu.co”)

One look at the Reliance Free Basics website for details on the websites which as of today on the platform shows that only thirty one websites/Applications are part of the Free services available under “Free Basics”. The only social networking websites, no guesses required here, are Facebook and Facebook Messenger. Over and above this, the only search portal was “Bing”, the only Jobs portal was “BabaJob” (I hadn’t even heard or read of them before seeing them here) and the only shopping website was “OLX”. The result is a potentially serious anti-competitive scenario over the internet resulting

THE INTERNET IS NOT A BUSINESS.

David Kirkpatrick, in a Linkedin Pulse Blog Post, is one of the few who has come out in defence of Facebook/Free Basics. He opined a marxist argument questioning in bold words “Do all these elite and generally upper-class and affluent Indian pundits, professors and anti-corporate activists have a better way to get many millions of less-privileged Indians onto the Internet?” and further goes on declare as follows:

“But in my view Free Basics is a fine example of what many call “doing well by doing good.” There is nothing wrong with being in business. There is nothing wrong with a business trying to acquire new customers. There is nothing wrong with offering something for free that you might charge for later. And however ruefully people elsewhere sometimes view it, there’s nothing wrong with Facebook being an American company operating successfully around the world.

Do all these elite and generally upper-class and affluent Indian pundits, professors and anti-corporate activists have a better way to get many millions of less-privileged Indians onto the Internet? If they don’t, their arguments are hollow. It’s hard to understand why Facebook shouldn’t be able to subsidize new customers’ entrance into the contemporary world of information power. For the poor, the opponents’ arguments add up to literally nothing. That’s what those people would get without Free Basics. But then, that’s what such people have had in India for millenia.

As I have already acknowledged, I too believe that Mark Zuckerberg is pursuing his endeavour with such zeal partly due to the obvious enormous potential advantage it can generate in favour of Facebook as well as a sense of idealism and an intent to do some good. But Kirkpatrick misses the point. THE INTERNET IS NOT A BUSINESS. It is a resource. You may use the internet to build a profitable business, but one cannot be allowed to make a business of the internet itself. The internet is a resource which is first and foremost, in the custody of the State which acts as a custodian of the resource on behalf of the citizens of that State. Which is why you have spectrum auctions. The Central Government, which is the custodian and owner of all spectrum in the Country, effectively leases bandwiths in different circles to different businesses which can harness the spectrum to provide internet services and/or use the internet itself. What Free Basics aims to do is to make a business out of the Internet itself. by allowing access to some applications while denying access to others (on technical grounds, if not more nefarious reasons), it effectively seeks to control what you consider as “The Internet”. Furthermore, it is important to note that Facebook itself has acknowledged that it is open to advertisement on the Free Basics platform to generate revenue in the future.

LACK OF CONNECTIVITY IN INDIA IS BECAUSE OF LACK OF INFRASTRUCTURE. NOT LACK OF FREE BASICS

The lack of connectivity in India is not because of lack of money. If a man or a woman can afford a smartphone, it’s safe to presume that he or she can also afford a 3G/4G pack along with it or be able to access wi-fi from some point, either at home or work or both. The problem of connectivity has more to with lack of infrastructure, both in rural and urban areas, and “Free Basics” does nothing to solve this. It does not help to build mobile towers or help in contributing additional spectrum for public use. All that it does is allow access to some websites for free. But what would be the point to allowing free access to websites on the internet if they cannot get the signal/bars to access the internet in the first place ?!?! If anything, it has the potential to add to the burden of the overused and under developed mobile connectivity services.

CONCLUSION

To conclude:

(R. Prasad)

Facebook may have just lost some serious love and respect in one of its biggest markets.

P.S. : HAPPY NEW YEAR. 🙂

Société Coopérative de Production SeaFrance SA v The Competition and Markets Authority and Another, [2015] UKSC 75

I just came across an interesting Judgement by the Supreme Court of United Kingdom on mergers delivered recently on 16.12.2015 titled Société Coopérative de Production SeaFrance SA v The Competition and Markets Authority and Another, [2015] UKSC 75 (Hat tip to SCC Online) wherein it has been observed that the merger control provisions of the Enterprise Act, 2002 are not limited to the acquisition of a business that is a “going concern” but would include even the acquisition of the assets of a defunct business. According to the Court, “An enterprise is subject to merger control if the capacity to perform those activities as part of the same business subsists.”

BACKGROUND TO THE APPEAL

SeaFrance SA, a French company, operated a ferry service between Dover and Calais until it ceased operations on 16 November 2011. It was formally liquidated on 9 January 2012, and most of its employees were dismissed. Groupe Eurotunnel SA (“GET”), the parent company of the Group operating the Channel Tunnel, and Société Coopérative De Production SeaFrance SA (“SCOP”), a workers’ co-operative incorporated by a number of former SeaFrance employees to secure the continuance of the ferry service, acquired substantially all of SeaFrance’s assets on 2 July 2012. This included three of the four SeaFrance vessels, trademarks, IT systems, goodwill and customer lists. GET and SCOP resumed ferry services on 20 August 2012 through GET’s subsidiary company, MyFerryLink SAS. The vessels were operated by employees who had almost all worked for SeaFrance. The reemployment of those employees had been incentivised by a statutory Plan de Sauvegarde de l’Emploi (known as the PSE3), by which SeaFrance’s parent company SNCF would provide payments to employers for employing ex-SeaFrance employees.

The acquisition was referred to the Competition Commission, the regulator at the time. It concluded that there was a “relevant merger situation” for the purpose of the merger control provisions of the Enterprise Act 2002, which could be expected to result in a substantial lessening of competition in the cross-Channel market. The “enterprise” of SeaFrance continued since its “activities” continued, even though there had been a hiatus of over seven months in its operations. The Commission imposed restrictions on the operation of the service by GET and SCOP, including a ban on using the exSeaFrance vessels for ferry services from Dover for 10 years. On appeal to the Competition Appeal Tribunal, the Tribunal gave guidance on the meaning of “enterprise” in the Eurotunnel I judgment, and remitted the question of jurisdiction back to the new regulator, the Competition and Markets Authority.

Upon the remission, the Competition and Markets Authority (which had assumed the functions of the Commission) considered that what had been acquired was an “enterprise”, and therefore that a “relevant merger situation” existed. Accordingly they confirmed the restrictions previously imposed by the Commission. That decision was upheld by the Competition Appeal Tribunal in the Eurotunnel II judgment.

The Court of Appeal allowed an appeal by a majority, holding that GET and SCOP had not acquired an “enterprise”, but only the means of constructing a new (but similar) one. In particular, this was because they had not acquired SeaFrance’s crews. They concluded that it was irrational for the Competition and Markets Authority to reach any other conclusion on the facts.

REASONS FOR THE JUDGMENT

The merger control provisions of the Enterprise Act 2002 are not limited to the acquisition of a business that is a “going concern”. The possession of “activities” is a descriptive characteristic of an enterprise under the Act. An enterprise is subject to merger control if the capacity to perform those activities as part of the same business subsists. [32-35]

The test is one of economic continuity. An Acquirer acquiring assets acquires an “enterprise” where (i) those assets give the Acquirer more than might have otherwise been acquired by going into the market and buying factors of production and (ii) the extra is attributable to the fact that the assets were previously employed in combination in the “activities” of the target enterprise. The period of time between cessation of trading and acquisition of control of the assets may be a relevant factor, but is not necessarily decisive. [36-40]

This was substantially the same principle set out by the Competition Appeal Tribunal in Eurotunnel I, which the Competition and Markets Authority applied in this case. [40-41]

The Court of Appeal’s finding that the Authority’s evaluation was irrational was unjustified. GET and SCOP acquired substantially all the assets of SeaFrance, including trademarks, goodwill, specialist vessels maintained in a serviceable condition, and substantially the same personnel. The Authority’s conclusion that this demonstrated “considerable continuity and momentum” and “the embers of an enterprise”, which could be passed to GET and SCOP, was unimpeachable. The order of the French Court of 9 January 2012 to dismiss the employees did not disrupt that continuity and momentum because the order was made on terms that the PS3 preserved the prospect of employment on the ships for the dismissed crew members. [41-43]

The majority of the Court of Appeal was wrong to narrow the question of economic continuity to the legal effect of the decision of the French Court in January 2012 and whether this terminated the employment relationship between SeaFrance and its employees. The Competition and Markets Authority is not entitled to any special level of deference: the test for determining whether there is a “relevant merger situation” and relevant “activities” is a legal question. [31] But the Authority undertook a broader economic analysis, concluding that there was economic continuity. That evaluation was complex and sensitive to a whole range of factors. It was not a purely legal enquiry. Its economic analysis should be respected. [44-45]

References in square brackets are to paragraphs in the judgment

When one goes through Section 5 of our own Competition Act, 2002 as well as the definition of the term “Enterprise” under Section 2(h) of the Act, there appears scope for a similar dispute to arise in our own jurisdiction in the future. The definition of the term “Enterprise” under Section 2(h) also does not contemplate any such merger or acquisition of a defunct organisation. Yet, this happens on a frequent basis in the Indian corporate sector, albeit since individual transactions are on scales relatively small, they avoid triggering the C.C.I. combination process.

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)

The Almost Redundant Swaziland Competition Commission

Here’s an interesting bit of news from Africa. As per a well known Blog on African Competition Law, the Swaziland Competition Commission has all but shuttered it’s doors since the formation of C.O.M.E.S.A.

For the uninitiated, the Common Market for Eastern and Southern Africa (C.O.M.E.S.A.) is a Free Trade Agreement/Free Trade Area similar to the Schengen Area/Schengen Agreement in Europe. It comprises of twenty Member States and is considered one of the pillars of the African Economic Community. The COMESA Competition Commission was formed under Article 6 of the Regulations and is based in Lilongwe, Malawi and commenced work on 14th January, 2013.

According to the post, since the creation of its competition-law authority in 2007, C.O.M.E.S.A. member state Swaziland has seen only two enforcement matters, according to a report by the Observer. Even by C.O.M.E.S.A.’s statistical standards, two matters in seven years amounts to a record low.

This is the first time I have ever heard of a State Competition Authority being over board by a Multi-State Organisation. European Member States are in fact quite particular about asserting their individual sovereignty under the T.F.E.U. (E.U. Community Law is applicable only when trade between the E.U. Member States is affected.)