Does e-commerce harm competition? This is what CCI study says

By Abir Roy

The Competition Commission of India (CCI), on August 30, released its interim findings on the ongoing study of the e-commerce sector. This study was initiated by the CCI on account of rapid growth of the sector and the rising importance of online trade. The findings are: (a) preferential terms and visibility to certain ‘preferential’ sellers, higher search rankings, etc, although the same have been vehemently denied by the platforms as they claimed all sellers are independent third-party sellers; (b) platforms playing a dual role raising issues of neutrality; and (c) strict on-board reseller norms to reduce the nuisance of counterfeiting.

While these findings were released by the CCI after a lengthy discussion with all the stakeholders over a period of time and seem to note down the concerns of the offline trade, it is yet to come out with its analysis of the issues presented in these interim findings. It would be interesting to find out the final approach of the CCI considering that, in the past, it has had a chance to review this sector in a combination decision (the Walmart-Flipkart deal) and in an abuse of dominance case (AIOVA case against Flipkart).

Interesting, in the combination case, the CCI noted the concerns outlined above and noted that these may require an analysis under Section 3 (provisions relating to anticompetitive agreements), and as such the CCI had approved the transaction since the concerns highlighted therein were pre-existing and not a result of the investment of Walmart in Flipkart. However, the CCI has not yet analysed the same under Section 3 and the final study may throw some light on the same. The key point for the CCI is to see herein whether the activities of the major e-commerce players, Amazon and Flipkart, i.e. their agreements with preferential sellers (if they exist), cause an anticompetitive foreclosure to other non-preferential sellers.

This would, in turn, depend on whether the online market is separate from the offline market. In 2014, the CCI, in one of the cases, had noted that offline and online markets are not separate; however, with great deference, the case was decided five years ago and may require a de novo outlook.

Digressing from the CCI issue slightly, the concerns raised by offline traders that have been put in by the CCI in the interim findings may require to be reviewed from the perspective of FDI norms, too. Earlier this year, FDI norms qua e-commerce were revised substantially and this change came against the backdrop of objections raised on (i) predatory pricing and loss funding; and (ii) web of preferential sellers created by such dominant e-commerce players. The changes to the said policy addressed some of the concerns.

Now, if the final study of the CCI does indicate that this practice exists of preferential sellers, discounts provided by such practices, dehors the fact that such practices may or may not require an analysis under the provisions of the Competition Act, may fall foul of the violation of FDI policies. Interestingly, in a case concerning Snapdeal some time ago, the CCI had ruled that Snapdeal does determine prices and is not a pure play marketplace. The same would be applicable to other prominent marketplaces.

On the issue of counterfeit, recently the Delhi High Court rounded up major e-commerce platforms like Amazon, Flipkart and 1mg, throwing light on the various practices they were indulging in. This case comes as a relief to companies that are engulfed in consumer complaints and counterfeiting with no relief as these platforms take the defence of ‘intermediaries’. The Delhi High Court holds these platforms liable for inducing breach of contract and allowing the sales of unauthorised products on their platforms.

Therefore, all the said issues pointed out by the traders are likely to find a mention in the final study that would be released by the CCI and it may have an implication both under the Competition Act and also on other laws like the FDI policy and consumer protection laws et al. E-commerce players have long deflected liability claiming themselves as mere intermediaries, but post the above observation by the Delhi High Court coupled with the changes in consumer laws by bringing in definition of product seller and electronic service provider in consumer protections laws may no longer be the case.

(The author is founder, Sarvada Legal. He represented as an advocate to the Confederation of All India Traders (CAIT) in their challenge to the Walmart-Flipkart deal before the CCI, which is currently in appeal before the National Company Law Appellate Tribunal.)

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