Defining dominance

Google case can guide future investigations

Even as the National Company Law Appellate Tribunal (NCLAT) upheld the Rs 1,338-crore penalty imposed on Google by the Competition Commission of India (CCI) for abusing its dominant position, it offered the digital giant some relief by removing several conditions imposed by the competition watchdog. It also made a suggestion in its order about the need to use effect analysis to prove abuse of dominance. This could have a far-reaching impact on ongoing and future anti-competitive investigations by the CCI. In terms of users, India is the largest market for Google with 97 per cent of its smartphone users using Android devices. The tribunal upheld the CCI fine, saying it was in line with natural justice. Google has said it was evaluating its legal options.

The NCLAT set aside four of the 10 directives imposed on Google as “unsustainable”. Two included the need to permit hosting third-party app stores within Play Store, and not restricting users from removing pre-installed apps. The CCI had also ordered Google to not deny access to the play services’ application programming interface to original equipment manufacturers (OEMs), developers and competitors, and also to not restrict an app developer’s ability to distribute apps through side-loading. The NCLAT struck those orders down. However, Google has said it will institute changes to comply with the other CCI directives. OEMs will be able to license individual Google apps for pre-installation on their devices. Indian users will have the option to choose a default search engine via a choice screen. Also, user choice billing will be possible, allowing third-party billing rather than using Play Store accounting software.

Effect analysis looks at the impact of dominance and examines the practices of dominant businesses to see if there has been an anti-competitive effect. Corporate policy will always be designed to benefit the company concerned and a company that holds a dominant market share could be anti-competitive in many ways. For example, it might charge extraordinary premiums for its products or services, or may craft policy in ways that prevent innovation and shoulders competitors out of the market. If these effects are not apparent, then the policy of a dominant player in any market is not necessarily anti-competitive. However, in digital markets there is a further complication. Companies like Google, Amazon, Facebook, Uber, and Twitter have essentially created entirely new markets and defined their contours. Effect analysis is thus more difficult to carry out.

While the CCI and parliamentary panels debating the competition law have mooted looking for effect analysis, no such provision is written into the law. The CCI has been reluctant to roll out mechanisms for effect analysis because it would add to the costs of investigation and lead to delays. But it is also true that by the time exclusionary or exploitative effects become apparent, the market has already been damaged. Nonetheless, if the NCLAT view is interpreted as a directive from a higher court, as should be the case, the CCI would have to put mechanisms for effect analysis in place. It is also likely companies will ask for effect analysis if they receive adverse orders. This could, however, add a further layer of litigation in future.