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Supreme Court upholds COMPAT order directing competition investigations against UBER


By Charanya Lakshmikumaran & Puneeth Ganapathy

On 3rd September 2019, the Supreme Court of India (‘SC’) dismissed [See endnote 1] an appeal filed by Uber India Systems Pvt. Ltd. (‘Uber’) against the order of the erstwhile Competition Appellate Tribunal (‘COMPAT’) dated 7th December 2016.

In 2015, Meru Travel Solutions Pvt. Ltd. had made certain allegations against activities undertaken by Uber, in a complaint to the Competition Commission of India (‘CCI’).

Under Section 26 of the Competition Act, 2002, the CCI was thus required to decide whether a prima facie case sufficiently existed in order to have the Director General (‘DG’) investigate the complaint.

The complaint was decided upon by the CCI in Case No. 96/2015 by order dated 10th February 2016 (the ‘Uber Order’). Incidentally, a similar complaint by Mega Cabs Pvt. Ltd. against ANI Technologies, the owner of OLA had been decided a day earlier by the CCI in Case No. 82/2015 (the ‘OLA Order’).

Both complaints were disposed of by the CCI finding a lack of a prima facie case against the aggregators, thus not requiring an investigation by the DG.

The allegations

Meru and Mega Cabs had both alleged, in their cases against Uber and OLA respectively, that the latter had engaged in three broad anti-competitive practices.

First, that they were engaging in predatory pricing of cab rides offered on their applications– even asserting that Uber was willingly losing as much as approximately Rs. 200 per trip.

This was thus framed as an allegation of abuse of dominance by the relevant aggregators.

Second, that they were entering into exclusive contracts with the drivers using their platforms and preventing the entry of such drivers into other platforms.

Accordingly, such agreements were alleged to be anticompetitive.

Third, that unreasonably heavy incentives and attractive payment structures for the drivers were effectively resulting in excluding the drivers from joining other platforms, thus forming barriers to entry.

CCI’s findings

In the Uber Order, the CCI found that the allegations were baseless and unsustainable. With respect to abuse of dominance, the CCI defined the relevant market as the market for radio-cabs in Delhi alone.

The CCI disagreed with the informant(s) that the market was that of entire ‘Delhi – NCR’.

The rationale given was that the “regulatory architecture” in Delhi was different from that in other states, and that each state had a state transport authority regulating the radio-taxis in these regions.

The CCI referred to a Delhi High Court order which has required the radio-taxis in Delhi alone (and not NCR) to use CNG, as evidence of this. It also noted that the relevant apps apparently specifically distinguished between taxis available for booking within Delhi and those available for NCR.

Once market was defined in this manner, the CCI found there to be insufficient evidence to “establish dominance”.

In both cases, the CCI found the market research reports submitted by the informants, to be unreliable.

These research reports had stated that at different points of time, Uber had significant market shares of the NCR radio-taxi market, by fleet size, number of trips, etc.

Interestingly, the CCI relied on the same report to assert that the market identified was sufficiently competitive, although on the question of dominance, it expressly found the report to be unreliable.

The OLA order was also decided on similar lines by the CCI. Thus, although viewing the matter at a prima facie level, the CCI found that dominance had not been established either in the case of Uber or OLA.

Since dominance was not established, there was no prima facie case in relation to the alleged results of dominance, whether in the form of predatory pricing to riders or loyalty inducing schemes favoring drivers.

On the question of exclusive contracts, in the Uber order, the CCI simply accepted a “categorical denial” by Uber as to the existence of exclusivity clauses. It thus found no prima facie existence of an anti-competitive agreement.

COMPAT’s decision in appeal (Uber)

The Uber order was appealed against to the COMPAT, which overturned the CCI’s decision, directing the DG to commence an investigation in Uber’s case.

The COMPAT found fault with the Uber order on the following counts:

On the market being defined as Delhi and not Delhi-NCR

The COMPAT held that the distinction made by the CCI in terms of state transport regulators did not make practical sense, from the viewpoint of riders on the application.

From that viewpoint, riders could move from one point to another in the NCR seamlessly on the same application.

Therefore, the distinction in terms of CNG being mandated, or the alleged distinction within the application was considered irrelevant, at a prima facie stage, to determine the market from the customer/rider’s point of view.

The COMPAT also noted that by the time of its decision, the mandate to use CNG had been applied to drivers across NCR and was not limited to Delhi alone.
 
It was further noticed that OLA and Uber operate tourist agency permits and thus are not restricted to municipal limits. The COMPAT accordingly found that the market needed to be ascertained post an inquiry by the Director General.

On the issue of lack of evidence of dominance

The COMPAT found three problems with the CCI’s treatment of the market research report in the Uber order.

First, it found that the CCI had treated the report unreliable for the purpose of ascertaining dominance, and in the very same order the CCI relied on parts of the same report to find robust competition in the market.

Thus, the inconsistent position of the CCI was faulted.

Second, it found that Uber had not presented alternative statistics or an affidavit to substantively oppose the report and had merely discredited it by asserting that its contents were incorrect.

According to the COMPAT, the CCI’s finding that the report in the Uber Order appeared to be at odds with another market research report in the OLA order, was in fact a reason to seek clarity by having the Director General investigate the matter – rather than dismissing the complaint at a prima facie stage.

Third, it held that dominance was not only a question of market shares and had to be informed by various other factors such as funding, global developments, statements and network expansion.

SC in Uber’s appeal against the COMPAT’s decision

Uber appealed against the COMPAT’s decision to the Supreme Court, which has now been dismissed. In dismissing Uber’s appeal, a bench of Justice R.F. Nariman and Justice Surya Kant stated that based on the material provided by the informants, it would be difficult to say that no prima facie case is made out.

After stating that the relevant market may be Delhi NCR, the Hon’ble Supreme Court observed that the test for dominance is the ability to operate independently of market forces or affect the relevant market or the competitors.

It noted that an abuse under Section 4(2)(a) is the imposition of an unfair price in purchase or sale of products, including predatory pricing.

It was thus stated that if loss is being made for trips, then Explanation (a) (ii) to Section 4, that is, case for abuse of dominance is prima facie attracted. While dismissing Uber’s appeal, the Hon’ble Supreme Court also directed the DG investigation to conclude the investigation in a time-bound manner in six months.

Comments

First, the SC’s decision reinvigorates Meru and Mega Cabs’ complaints against Uber and OLA respectively. The Director General will have to summon necessary evidence to:
  1. Determine the relevant geographic market, whether the same should be taken as Delhi alone or Delhi-NCR.
  2. Determine dominance – by seeking necessary information not limited to market shares of fleet size/drivers, trips, customers, but also as to funding, global trends, network expansion, etc.
  3. Accordingly – determine whether predatory pricing to riders or excessive incentivization of drivers is existent, and whether the same can be termed abusive.
  4. Determine issues of alleged anti-competitive agreements in making the drivers exclusive to their applications, whether by way of a direct exclusivity restriction or indirectly disincentivizing non-exclusivity.
Second, reading the decision of the COMPAT, effectively, the alleged unreliability of a market research report would require the CCI to err in favour of causing an enquiry rather than dismissing a complaint at the prima facie stage itself.

Third, by dismissing complaints on account of unreliability of evidence at the prima facie stage, the CCI was effectively imposing a significant burden of proof on informants.

The SC, in blessing the COMPAT’s decision has effectively reversed this position. As noted by the COMPAT, where in a prima facie determination stage, the defendant tries to discredit the evidence pointed by the informant and attempts to seek a Section 26(2) order dismissing the complaint, it will be well-advised to affirmatively put forth counter-evidence, where possible.

Fourth, the SC’s decision favors an investigation into the question of dominance when a prima facie case of predatory pricing, and possibly, any form of abusive conduct, is made out - without requiring dominance to be established at that stage.

Fifth, and most importantly, from the perspective of competition law jurisprudence in India – the SC had held in 2010 in CCI v. SAIL that an order of the CCI directing investigation by the Director General under Section 26(1) does not determine rights or obligations of the parties to the lis. Thus, the SC arguably set a low threshold for reasoning to be given by the CCI in a Section 26(1) order.

However, it expressly held that, under Section 26(2) “Closure of the case causes determination of rights and affects a party, i.e. the informant”. Consequently, the standard of reasoning to be given by the CCI is arguably higher when dismissing a complaint under Section 26(2).

For this additional reason, as noted above, prospective defendants at the prima facie stage desiring to have a complaint dismissed must thus be prepared to go beyond merely asserting the insufficiency of evidence given by an informant.

[The authors are Partner and Principal Associate, respectively, in Competition law practice, Lakshmikumaran & Sridharan, New Delhi]

______________

Endnote:

1. Based on oral Order of the Supreme Court pronounced on 3-9-2019.
 

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