By Apoorva Mandhani, Symbiosis Law School, Pune.

Online market platforms have altered the dynamics of many businesses since its inception. This has shaken the well-established offline retail market; and offline retailers fear the loss of business at a great extent because of E- Tailers.[1] Consequently, even at such a nascent stage, online markets have come under the scanner of the Competition authorities.

The Competition Commission of India considered an aspect of such concerns in the online markets in the Kaff Appliances case[2], Snapdeal[3] case and Mohit Manglani[4] case. The cases have been elaborated on below, with relevant competition law aspects highlighted.

The Snapdeal case[5]:

The complainant in this case, Mr. Asish Ahuja, was engaged in selling various products like laptops, pen drives, hard disks etc. Mr. Ahuja began selling his products online through Snapdeal. The sale was however scrapped in January, 2014, because the complainant was not in the list of the “authorized online channel partners” of SanDisk India, the Indian sales office of SanDisk Corporation, USA, also engaged in the business of manufacture, distribution and sale of non-volatile memory drives or flash drive, etc. and consequently a competitor of the complainant.

A natural conclusion drawn by Mr. Ahuja was that SanDisk India and Snapdeal had entered into some agreement to market SanDisk products online for Indian consumers. This agreement was assumed to be drawn subsequent to the one Snapdeal had with Mr. Ahuja.

CCI however did not find a prima facie case in the complaint filed and refused to offer further investigation by the DG. While discussing the relevant market for products and services offered by the opposite parties, the CCI observed:

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“The Commission also notes 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 increase 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.”

An appeal was filed before the COMPAT. It was however withdrawn on February 13, 2015 due to defective impleadment of the parties with liberty to file fresh information.[6]

On the basis of this order, the e-commerce is a channel of distribution to the relevant market of the retail, inclusive of the brick and mortar outlets (in both organized and un-organized sector), the market share of e-commerce itself is substantially low, i.e. 0.5% of the entire retail market in India.[7]

The Kaff Appliances case[8]:

The complainant in this case, M/s Jasper Infotech Private Ltd. owned and operated the online marketplace website www.snapdeal.com. The Opposite party, M/s Kaff Appliances (India) Private Ltd. was engaged in manufacturing and selling of a wide range of kitchen appliances under the brand name ‘Kaff’. Kaff had informed the public that it will not honor the warranties of its products sold through Snapdeal, which were being sold by Snapdeal at discounted prices. Kaff was aggrieved by the fact that Snapdeal was displaying Kaff’s products at prices below the least price agreed upon between them. They had an agreement between them according to which the products were agreed not to be sold below the price agreed upon between them.

Snapdeal had contended that the threat to not honor warranties on products sold on online markets and websites had the effect of cutting off supplies to distributors who intended to sell through the online channels. It was further argued that refusing to honor warranties essentially lead to discrimination against online sale channel. This strategy limited the market for distribution of products, in violation of section 3(3) (a), 3(3) (b) and 3(3) (c) of the Act.

The CCI found a prima facie case against Kaff. It observed that the price prescription was prima facie in violation of Section 3(4) (e) read with Section 3(1) of the Competition Act, 2002. This was due to the fact that it caused AAEC by obstructing the capability of dealers/distributors to compete on the price. The expected AAEC, coupled with a market share of 28% would, prima facie, have an appreciable adverse effect on competition in India. The DG was hence directed to investigate into the matter.

Finding a prima facie case found in the matter, it can be argued that products sold in online markets must be treated at par with the products sold by authorized distributors through brick and mortar outlets[9] and the manufacturer cannot deny warranty or other post-sale services to the consumers who procure the products through such ORPs.

Mohit Manglani Case[10]:

In this case, information was filed against Flipkart, Amazon, Snapdeal and various other portals for entering into exclusive distribution agreement of certain products with their distributors. The complaint was on the lines that certain products were exclusively available on certain online portals and were not made available any place else including brick and mortar outlets.

With regard to the possibility of AAEC from such agreements, the Commission observed:

“It seems very unlikely that an exclusive arrangement between a manufacturer and an e-portal will create any entry barrier as most of the products which are illustrated in the information to be sold through exclusive e-partners (OPs) face competitive constraints. For example, mobile phones, tablets, books, camera etc., are neither alleged nor seem to be trodden by monopoly or dominance. Further, it does not appear that because of these exclusive agreements any of the existing players in the retail market are getting adversely affected, rather with new e-portals entering into the market, competition seems to be growing.”

The CCI however, did not opine conclusively on the question of online and brick and mortar being separate markets by stating that “[I]rrespective of whether we consider e-portal market as a separate relevant product market or as a sub-segment of the market for distribution, none of the OPs seems to be individually dominant“.

The All Delhi Computer Trader Association had further alleged that the heavy discounts were offered by such platforms in order to eliminate competition from the relevant product market, as brick and mortar retail outlets will not be able to compete as they cannot offer the product at such cut prices. The CCI, however, denied allegation of dominance under Section 4.

Predatory pricing is a form of anti-competitive conduct that involves charging a price lower than the cost of production so as to eliminate competitors on grounds other than efficiency.[11] For predatory conduct to be proved, it is essential that the player making such pricing occupies a dominant position in the relevant market, as in the absence of such position it will be unable to affect competition. However, with the ruling in the Snapdeal case, any such dominance has been negative.

Conclusion:

As per the current rulings by the CCI on the issue, online markets do not pose any threat to the competition in India. Predatory pricing was expressly ruled out by the CCI. Further, establishing a dominant position for any one player in online markets is not easy as all the web-portals, such as Flipkart, Amazon, eBay, Yebhi and Junglee are competing with each other. These stores provide competition to each other, with regard to offering of a platform to two kinds of market participants – sellers (to offer products to customers), as well as customers (to select the best deals/prices). Participation in the online markets, sourcing their products through these platforms can offer recourse to the brick and mortar traders.

However, these cases do not provide a final verdict on the competition law concerns involved as not all competition law concerns have been addressed. Further, such observations hold good in the light of the fact that online markets and brick and mortar outlets have been considered to be separate channels of the same relevant market and not separate relevant markets altogether. With the fact-specific inquiries conducted by the CCI and the constant challenges to this sector, this situation might falter.

[1] Ashish Patel, “Major Competition Law Issues in E-Tail Market”

[2] M/S Jasper Infotech Private Ltd. v. M/s Kaff Appliances (India) Private Ltd., Case No. 61/2014

[3] Ashish Ahuja v. Snapdeal & Anr., Case No. 17 of 2014, dismissed by order under Section 26 (2) of the Act dated May 19, 2014.

[4] Mohit Manglani v. Flipkart India Private Limited & Ors., Case No. 80/2014

[5] Order available here

[6] Order available here: http://compat.nic.in/upload/PDFs/feborders-2015/13-02-2015.pdf

[7] CRISIL Opinion, Online retail heat altering brick & mortar models, February 2014, available at http://www.crisil.com/pdf/research/CRISIL-Research-Article-Online-Retail-Feb14.pdf

[8] Order available here

[9] Divye Sharma, “India: Competition Law and E-commerce: A concern for the future”

[10] Order available here

[11] Jahnavi Mitra, “Predatory Pricing and Competition Law”

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