E-commerce has been in focus in the recent past for a myriad of
legal issues ranging from the complexities surrounding e-contracts
to the delicate issues of privacy. Competition law also has had its
share of involvement in the growth of e-commerce. The competition
concerns, albeit obvious, are far from simple. While the sector has
obviously led to increased competition in the erstwhile brick and
mortar market, this ‘desirable’ competition has to struggle with
acceptance. The unprecedented growth in this sector in India,
though not completely surprising has led to mixed reactions. While
the promoters and owners of e-commerce enterprises are basking
in the glory of their well deserved success, the owners of brick and
mortar stores, both distributors and retailers are pretty much up
in arms against their e-commerce counterparts, often addressed
by the popular media as e-tailers.
India's e-commerce sector is expected to have 7 per cent share
of country's retail market amounting to USD 60 billion by 2023.
E-commerce in itself can be divided into two segments: B2B
e-commerce and B2C e-commerce.
• B2B implies business-to-business e-commerce and is used
to describe commerce transactions between businesses,
such as between a manufacturer and a wholesaler, or
between a wholesaler and a retailer, or between a supplier
and a manufacturer. A platform i.e. B2B exchange, provides
a platform for these business to meet and culminate their
transactions.
• B2C e-commerce on the other hand implies business to
consumer e-commerce and is used to denote online sale of
goods and services directly to consumers.
Interestingly, DIPP’s in its discussion paper on permitting FDI in
B2C e-commerce, reflects that global B2B transactions comprise
90% of all e-commerce,2
and B2C share is only 10% of the total
e-commerce. However, both B2C and B2B are susceptible to
competition issues and this has been recognized worldwide. While
obviously enough growth of e-commerce is good news for a law
which seeks to promote and establish competition, in as much as
it increases competition; it is also posing complicated challenges
to ensure that distortions in the market which are either created
by e-commerce or effect e-commerce are addressed through the
Competition Act, 2002 (‘Act’)...
How will Competition issues be
dealt in India?
While it is obvious that there are concerns in the e-commerce
sector, it remains to be seen how the Commission will deal with
these issues:
• Collusion in B2B exchanges
Collusion in B2B exchanges will be analysed under Section 3(3)
of the Act, as a horizontal agreement between enterprises that
are same level in the production/supply chain. Such agreements
Issues of predatory or excessively low pricing in B2C
The most controversial issue that has emerged in this sector
relates to the alleged practice of low prices being charged
by e-tailers, alongwith certain suggestions of the prices
being predatory. It is relevant to note that predatory pricing
is only a concern if the enterprise charging such prices is
in a dominant position in the relevant market. Hence, any
allegations of retailers about the prices being charged by their
e-counterparts, being predatory will be actionable under the
Act only if the e-tailers are found to be dominant in the market.
If and when the concept of collective dominance is incorporated
within the scope of Section 4 of the Act, retailers might be able to
argue that e-tailers are collectively dominant.7
With the still limited
reach of the internet, the mere insignificance of the number and
volume of trade of e-tailers compared with the retailers, to what
extent the Commission will adjudge e-tailers to be dominant or
even collectively dominant, is an issue that probably only the
Commission can decide. However, if dominance is not established
there is little likelihood of the practice of the alleged predatory
pricing or predatory discounts being caught within the Act.
• Issue of discriminatory treatment in B2C e.g., denial of
warranty
An issue that has come to light in the recent past is the alleged
discriminatory treatment towards products purchased through
e-tailers. There is some hue and cry over advises being issued by
certain companies to consumers requesting them to be cautious
while purchasing products from e-tailers and check the warranty.
Mere issuance of such advises to the customers can’t be illegal
under the Act even though they may adversely affect the business
of the e-tailers. However, any form of discriminatory treatment
towards e-tailers including, but limited to denial of warranty can
are presumed to have Appreciable Adverse Effect on Competition
(AAEC) and are thereby per sevoid. The Commission has
indicated in its orders that as long as the existence of the
agreement is proved, no further proof of any harmful effect on
competition will be required. It is likely that the Commission
will adopt the same approach in cases of collusion in the B2B
exchanges and as long as some form of agreement can be
established, the conduct will be found to be anti competitive. It
is relevant to point out that ‘agreement’ is interpreted widely in
India not just formal agreements but also understandings or an
action in concert. In view of the wide definition, collusion amongst
in B2B marketplace is likely to be caught within Section 3(3) of
the Act. The penalty for such cartelization may be upto 3 times of
its profit for each year of continuance of such agreement or ten
percent of its turnover for each year of the continuance of such
agreement, whichever is higher. It will be noted that the CCI in the
last 5 years of its enforcement regime, has invoked the penalty
provision wherever it has foound that the economic actors has
acted in cartelized manner...
be covered under Section 4(2)(a) of the Act which prohibits
discriminatory treatment in purchase of goods as well as Section
4(2)(c) of the Act which prohibits denial of market access in any
manner. It is obvious that discriminatory treatment, if in the nature
of denial of warranty would effectively push the e-tailers out of
the market, especially in electronic goods segment. However,
as discussed before, such recourse is available only when the
manufacturer imposing such restrictions is found to be dominant
in the market. The issue may be also be examined as a vertical
restraint under Section 3(4) of the Act and reference in this regard
may be made by the Commission to the Guidelines
If manufacturers collectively decided to impose such restrictions, it
would be a worthwhile option for the e-tailers to file an information
suggesting collusion between the manufacturers which results
in limiting supply and thereby contravenes Section 3(3) of the
Act. Success before the Commission would depend on whether
an agreement is fount to exist. Given the wide connotation of
agreements as indicated by the Commission in Neeraj Malhotra
v. Deustche Post Bank Home Finance Ltd. & Ors.
8
it is likely an
action by all manufacturers discriminatory in a similar manner
against the e-tailers would be caught within the ambit of Section
3(3) of the Act.
The allegations that however, seem to emerge at this stage,
reflect the scenario where the retailers are inducing the
manufacturers to impose such discriminatory terms on the
e-tailers. There is no precedent as of now in the Indian law
which deals with such an arrangement. However, in view of
the order in Mr.RamakantKini v. Dr. L.H. Hiranandani Hospital,
Powai, Mumbai,
9
it is possible that the Commission might
treat Section 3(1) as a repository for all such unconventional
agreements and find them void if they cause an appreciable
adverse effect on competition.
Interestingly, in a recent order in Mr. Ashish Ahuja v. Snapdeal.
com through Mr.KunalBahl, CEO &Ors.10which is the first order
to be passed by the Commission in relation to e-commerce, it
appears that the Commission may uphold certain reasonable
measures that may be taken by the manufacturer to, “protect
the sanctity of its distribution channel” may be permitted.
The Commission further observes that, “in a quality-driven
market, brand image and goodwill are important concerns
and it appears a prudent business policy that sale of products
emanating from unknown/unverified/unauthorised sources are
not encouraged/allowed.” Hence not all forms of restrictions
on e-commerce will fall foul of the Act. This is in line with
the observations of the European Commission in both the
Guidelines as well as in Pierre Fabre Dermo-Cosmetique. As
expected since there was some alleged arrangement between
the online portal, Snapdeal and the manufacturer, SanDisk,
the Commission viewed the issue from the lens of Section 3
of the Act though the order does not make it clear whether the
agreement was assessed under Section 3(3) or Section 3(4)
of the Act. The Commission also reviewed it under Section 4
of the Act but found that both the opposite parties were not
dominant in the relevant market. Though, the order has left
many issues still unaddressed, it did provide an understanding
of what the relevant market is likely to emerge as in as much
as the Commission unequivocally stated that,
“both offline and online markets differ in terms of discounts and
shopping experience and buyers weigh the options available in
both markets and decides accordingly. If the price in the online
market increases significantly, then the consumer is likely to
shift towards the offline market and vice versa. Therefore, the
Commission is of the view that these two markets are different
channels of distribution of the same product and are not two
different relevant markets.”
It is hence obvious that the Commission will treat the offline
and online market as merely different channels which would
imply that finding an e-tailer dominant in the relevant market
will not be easy.
• Issue of prohibition of sales on the internet.
A major issue that bothers e-tailers is the danger of an absolute
prohibition on sales on the internet. This however would be legally
the easiest issue to deal with under the Act. An absolute prohibition
on sale through the internet is likely to be achieved in two ways: (a)
imposition of a restraint in the Dealership Agreement, prohibiting to
sell through online channels directly or indirectly, and (b) refusing
the deal with distributors who sell through the online channels. The
former case would fall within the domain of Section 3(4) of the Act
and be in contravention of the Act where it causes an appreciable
adverse effect on competition. The latter will most likely present
an issue if the manufacturer is dominant, as an action of refusing
to deal with a distributor without reasonable justification would
amount to an abuse under section 4(2)(c) of the Act by denying
access to that distributor to the market. Finding of dominance will
be essential to determination of abuse.
legal issues ranging from the complexities surrounding e-contracts
to the delicate issues of privacy. Competition law also has had its
share of involvement in the growth of e-commerce. The competition
concerns, albeit obvious, are far from simple. While the sector has
obviously led to increased competition in the erstwhile brick and
mortar market, this ‘desirable’ competition has to struggle with
acceptance. The unprecedented growth in this sector in India,
though not completely surprising has led to mixed reactions. While
the promoters and owners of e-commerce enterprises are basking
in the glory of their well deserved success, the owners of brick and
mortar stores, both distributors and retailers are pretty much up
in arms against their e-commerce counterparts, often addressed
by the popular media as e-tailers.
India's e-commerce sector is expected to have 7 per cent share
of country's retail market amounting to USD 60 billion by 2023.
E-commerce in itself can be divided into two segments: B2B
e-commerce and B2C e-commerce.
• B2B implies business-to-business e-commerce and is used
to describe commerce transactions between businesses,
such as between a manufacturer and a wholesaler, or
between a wholesaler and a retailer, or between a supplier
and a manufacturer. A platform i.e. B2B exchange, provides
a platform for these business to meet and culminate their
transactions.
• B2C e-commerce on the other hand implies business to
consumer e-commerce and is used to denote online sale of
goods and services directly to consumers.
Interestingly, DIPP’s in its discussion paper on permitting FDI in
B2C e-commerce, reflects that global B2B transactions comprise
90% of all e-commerce,2
and B2C share is only 10% of the total
e-commerce. However, both B2C and B2B are susceptible to
competition issues and this has been recognized worldwide. While
obviously enough growth of e-commerce is good news for a law
which seeks to promote and establish competition, in as much as
it increases competition; it is also posing complicated challenges
to ensure that distortions in the market which are either created
by e-commerce or effect e-commerce are addressed through the
Competition Act, 2002 (‘Act’)...
How will Competition issues be
dealt in India?
While it is obvious that there are concerns in the e-commerce
sector, it remains to be seen how the Commission will deal with
these issues:
• Collusion in B2B exchanges
Collusion in B2B exchanges will be analysed under Section 3(3)
of the Act, as a horizontal agreement between enterprises that
are same level in the production/supply chain. Such agreements
Issues of predatory or excessively low pricing in B2C
The most controversial issue that has emerged in this sector
relates to the alleged practice of low prices being charged
by e-tailers, alongwith certain suggestions of the prices
being predatory. It is relevant to note that predatory pricing
is only a concern if the enterprise charging such prices is
in a dominant position in the relevant market. Hence, any
allegations of retailers about the prices being charged by their
e-counterparts, being predatory will be actionable under the
Act only if the e-tailers are found to be dominant in the market.
If and when the concept of collective dominance is incorporated
within the scope of Section 4 of the Act, retailers might be able to
argue that e-tailers are collectively dominant.7
With the still limited
reach of the internet, the mere insignificance of the number and
volume of trade of e-tailers compared with the retailers, to what
extent the Commission will adjudge e-tailers to be dominant or
even collectively dominant, is an issue that probably only the
Commission can decide. However, if dominance is not established
there is little likelihood of the practice of the alleged predatory
pricing or predatory discounts being caught within the Act.
• Issue of discriminatory treatment in B2C e.g., denial of
warranty
An issue that has come to light in the recent past is the alleged
discriminatory treatment towards products purchased through
e-tailers. There is some hue and cry over advises being issued by
certain companies to consumers requesting them to be cautious
while purchasing products from e-tailers and check the warranty.
Mere issuance of such advises to the customers can’t be illegal
under the Act even though they may adversely affect the business
of the e-tailers. However, any form of discriminatory treatment
towards e-tailers including, but limited to denial of warranty can
are presumed to have Appreciable Adverse Effect on Competition
(AAEC) and are thereby per sevoid. The Commission has
indicated in its orders that as long as the existence of the
agreement is proved, no further proof of any harmful effect on
competition will be required. It is likely that the Commission
will adopt the same approach in cases of collusion in the B2B
exchanges and as long as some form of agreement can be
established, the conduct will be found to be anti competitive. It
is relevant to point out that ‘agreement’ is interpreted widely in
India not just formal agreements but also understandings or an
action in concert. In view of the wide definition, collusion amongst
in B2B marketplace is likely to be caught within Section 3(3) of
the Act. The penalty for such cartelization may be upto 3 times of
its profit for each year of continuance of such agreement or ten
percent of its turnover for each year of the continuance of such
agreement, whichever is higher. It will be noted that the CCI in the
last 5 years of its enforcement regime, has invoked the penalty
provision wherever it has foound that the economic actors has
acted in cartelized manner...
be covered under Section 4(2)(a) of the Act which prohibits
discriminatory treatment in purchase of goods as well as Section
4(2)(c) of the Act which prohibits denial of market access in any
manner. It is obvious that discriminatory treatment, if in the nature
of denial of warranty would effectively push the e-tailers out of
the market, especially in electronic goods segment. However,
as discussed before, such recourse is available only when the
manufacturer imposing such restrictions is found to be dominant
in the market. The issue may be also be examined as a vertical
restraint under Section 3(4) of the Act and reference in this regard
may be made by the Commission to the Guidelines
If manufacturers collectively decided to impose such restrictions, it
would be a worthwhile option for the e-tailers to file an information
suggesting collusion between the manufacturers which results
in limiting supply and thereby contravenes Section 3(3) of the
Act. Success before the Commission would depend on whether
an agreement is fount to exist. Given the wide connotation of
agreements as indicated by the Commission in Neeraj Malhotra
v. Deustche Post Bank Home Finance Ltd. & Ors.
8
it is likely an
action by all manufacturers discriminatory in a similar manner
against the e-tailers would be caught within the ambit of Section
3(3) of the Act.
The allegations that however, seem to emerge at this stage,
reflect the scenario where the retailers are inducing the
manufacturers to impose such discriminatory terms on the
e-tailers. There is no precedent as of now in the Indian law
which deals with such an arrangement. However, in view of
the order in Mr.RamakantKini v. Dr. L.H. Hiranandani Hospital,
Powai, Mumbai,
9
it is possible that the Commission might
treat Section 3(1) as a repository for all such unconventional
agreements and find them void if they cause an appreciable
adverse effect on competition.
Interestingly, in a recent order in Mr. Ashish Ahuja v. Snapdeal.
com through Mr.KunalBahl, CEO &Ors.10which is the first order
to be passed by the Commission in relation to e-commerce, it
appears that the Commission may uphold certain reasonable
measures that may be taken by the manufacturer to, “protect
the sanctity of its distribution channel” may be permitted.
The Commission further observes that, “in a quality-driven
market, brand image and goodwill are important concerns
and it appears a prudent business policy that sale of products
emanating from unknown/unverified/unauthorised sources are
not encouraged/allowed.” Hence not all forms of restrictions
on e-commerce will fall foul of the Act. This is in line with
the observations of the European Commission in both the
Guidelines as well as in Pierre Fabre Dermo-Cosmetique. As
expected since there was some alleged arrangement between
the online portal, Snapdeal and the manufacturer, SanDisk,
the Commission viewed the issue from the lens of Section 3
of the Act though the order does not make it clear whether the
agreement was assessed under Section 3(3) or Section 3(4)
of the Act. The Commission also reviewed it under Section 4
of the Act but found that both the opposite parties were not
dominant in the relevant market. Though, the order has left
many issues still unaddressed, it did provide an understanding
of what the relevant market is likely to emerge as in as much
as the Commission unequivocally stated that,
“both offline and online markets differ in terms of discounts and
shopping experience and buyers weigh the options available in
both markets and decides accordingly. If the price in the online
market increases significantly, then the consumer is likely to
shift towards the offline market and vice versa. Therefore, the
Commission is of the view that these two markets are different
channels of distribution of the same product and are not two
different relevant markets.”
It is hence obvious that the Commission will treat the offline
and online market as merely different channels which would
imply that finding an e-tailer dominant in the relevant market
will not be easy.
• Issue of prohibition of sales on the internet.
A major issue that bothers e-tailers is the danger of an absolute
prohibition on sales on the internet. This however would be legally
the easiest issue to deal with under the Act. An absolute prohibition
on sale through the internet is likely to be achieved in two ways: (a)
imposition of a restraint in the Dealership Agreement, prohibiting to
sell through online channels directly or indirectly, and (b) refusing
the deal with distributors who sell through the online channels. The
former case would fall within the domain of Section 3(4) of the Act
and be in contravention of the Act where it causes an appreciable
adverse effect on competition. The latter will most likely present
an issue if the manufacturer is dominant, as an action of refusing
to deal with a distributor without reasonable justification would
amount to an abuse under section 4(2)(c) of the Act by denying
access to that distributor to the market. Finding of dominance will
be essential to determination of abuse.
