Most students and practitioners of Competition law are aware that Section
4 of the Competition Act, 2002 deals with abuse of dominant position. Among the
various proscriptions in the provision, direct or indirect imposition of unfair
or discriminatory prices (including predatory prices) in purchase or sale of
goods or services by a dominant entity is deemed as abuse by the entity of its
market position under Section 4(2)(a) of the Act.
Of the three kinds of pricing referred to in the provision, predatory
price is defined in the explanation to the provision, whereas there is no
express guidance on what constitutes “discriminatory price” and “unfair price”.
Since the Act uses two distinct terms which are capable of being ascribed
independent meanings, they must be recognized as two different forms of abuse
by a dominant entity, which are also distinct in the consequences for the
victim of the abusive conduct.
Discriminatory pricing results in what the literature broadly calls
exclusionary abuse, whereas unfair pricing is understood to lead to
exploitative abuse. Between the two, what constitutes discriminatory pricing is
relatively easier to understand compared to unfair pricing, notwithstanding the
absence of definitions for both in the Act. It is the interpretation of unfair
price that poses the challenge of subjectivity, which in turn calls for
safeguards to prevent imputation of a meaning which was never intended by the
Legislature.
As stated earlier, the Act does not define “unfair price”. Section 2(z)
of the Act states that words and expressions used but not defined in this Act
and defined in the Companies Act, 1956 shall have the same meanings
respectively assigned to them in the latter statute. Neither the Companies Act,
1956 nor the Depositories Act, 1996 appears to define “unfair” or “unfair
price”. The definitions of “unfair trade practice” in the Consumer Protection
Act, 1986 or the erstwhile MRTP Act, 1969 too do not seem to be of help in
understanding the meaning of “unfair” from the perspective of pricing.
This requires us to look for interpretation of
provisions in foreign legislations which are in pari materia with the Indian provision. Article 102 of the Treaty
on Functioning of the European Union (TFEU) is similar in language to Section
4(2)(a) of the Competition Act. However, in the EU too, the body of case law on
exploitative abuse is significantly small compared to judicial guidance on
exclusionary abuse. The trend in the EU too perhaps may be attributed to the
reluctance of the European Commission to deal with an inherently subjective
enquiry such as exploitative abuse.
Whatever little case law exists appears to
interpret “unfair” as “excessive”. The
frequently cited case on unfair/excessive pricing in the EU is the decision of
the European Court of Justice in United
Brands Company v. Commission of the European Communities (C-27/76 [1978]), wherein the following test was laid
down:
“The
questions therefore to be determined are whether the differences between the
costs actually incurred and the price actually charged is excessive, and, if
the answer to this question is in the affirmative, whether a price has been
imposed which is either unfair in itself or when compared to competing
products.”
Of the two questions which need to be answered under the test, the first
calls for the establishment of absence of a correlation between the costs
actually incurred and the price charged by the seller for a good or service.
This would require the antitrust regulator to also assess the fairness of the
profit margin earned by the seller. The larger policy implication is that
dominant players could be expected to charge fairly, which obligation does not
apply to entities which are not dominant. Simply put, since a dominant player,
by definition, is one who can act independent of market forces, he is expected
to adhere to higher standards of conduct given the potential for abuse and the
consequences for consumers and market as a whole.
Having said this, the question that arises with respect to application
of the United Brands test is this- is the regulator expected to merely
establish the absence of a reasonable correlation between costs and selling
price to arrive at a finding of unfair pricing? Or is it expected of the
regulator to first arrive at what is fair before commenting on the unfairness
of the price? It is one’s opinion that in either approach, the seller cannot be
left in the dark as to what is truly fair in order for him to avoid being
hauled up a second time for unfair pricing. In other words, although an enquiry
on exploitative abuse requires the regulator to perform the role of a price
regulator, it could be said that the regulator may also be called upon to set
prices. That said, this is not merely an issue of policy, since a regulator who
is the creature of a statute cannot exercise powers which have not been vested
in him by the statute.
In the Indian context, this boils down to a simple question- whether the
Competition Commission has the power to set/fix prices, and not just comment on
its unfairness? To answer this, one must interpret Sections 27 and 28 of the
Competition Act which spell out the powers of the Commission to deal with abuse
of dominant position. Specifically, Section 27(d) empowers the Commission to
direct that agreements which are in contravention of Section 4 “shall stand modified to the extent and in
the manner as may be specified in the order by the Commission”. Section
27(g) is even broader since it permits the Commission to pass such orders or
issue such directions it may deem fit. Similarly, Section 28(2)(a) empowers the
Commission to vest property rights, which implicitly includes creation of
interest in favour of third parties by way of a license. The combined
interpretation of these provisions makes it abundantly clear that the
Commission has the necessary power to fix prices in a given case if the case so
warrants.
For instance, in a situation where the agreement relates to a patent
license between a patentee who is a dominant entity and another entity which is
the licensee, the royalty tariff demanded by the dominant patentee could be
accused of abuse under Section 4 for unfair/excessive pricing. In exercise of
its power under Sections 27(d),(g) and 28(2)(a) based on the language of the
provisions, it appears possible for the Commission to modify and spell out the
prospective royalty tariff. Simply stated, apart from finding the extant
royalty tariff unfair, the Commission has the express power to dictate the
future tariff.
This conclusion typically raises objections relating to the
ability/expertise of the Commission to set future commercial terms in highly
specialized agreements where domain/sectoral expertise is called for to
understand the commercial practicalities of the sector. But that objection is
not one of statutory power, it is one of the Commission having the
wherewithal/expertise to do justice to the nature of enquiry. Therefore, such
an objection cannot be used to argue that the Commission lacks statutory
authority to fix prices since it is the language of the Act that is decisive of
the issue. In any event, this is not an
insurmountable challenge since the Commission has the power to consult experts
in the relevant domain before it fixes future tariff in specialized contexts.
The long and short of it is that the Competition Commission has the power to enquire into exploitative
abuse by a dominant entity and also has broad express powers to fix prices,
where warranted.