Open Access Research Article
Delhi Vyapar Mahasangh V. Flipkart Internet Pvt.Lit & Another (2020)
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Article Details
DELHI
VYAPAR MAHASANGH V. FLIPKART INTERNET PVT.LIT & ANOTHER (2020)
AUTHORED BY - AMBIKA
KANWAR SISODIYA
Reg. No. 2357108
CO-AUTHOR - SHAREEKA H S
Masters Of Law - LLM In
Corporate And Commercial Law
Christ University,
Bengaluru, India
October 2023
Delhi
Vyapar Mahasangh and ... vs -Flipkart-The-Fight-For-Oneplus-Exclusivity- on 13
January, 2020
COMPETITION COMMISSION OF INDIA
Case No. 40 of 2019
FACTS:
In the case before the Competition Commission
of India (Case No. 40 of 2019), Delhi Vyapar Mahasangh (DVM) filed a complaint
against Flipkart Internet Private Limited and Amazon Seller Services Private
Limited, collectively referred to as "Opposite Parties" (OPs), for
alleged violations of the Competition Act, 2002, Here are the key facts and
allegations:
Delhi Vyapar Mahasangh (DVM), a society of
Micro, Small, and Medium Enterprises (MSME) traders, filed the complaint
alleging violations of Section 3(4), Section 3(1), Section 4(2), and Section
4(1) of the Competition Act.DVM's members included MSME traders dealing in
smartphones and related accessories who used online marketplaces to sell their
products.
Flipkart, based in Bengaluru, operates as an e-commerce
portal that enables third-party sellers to offer goods to consumers on its
platform. Amazon Seller Services Private Limited, also based in Bengaluru, is
the marketplace affiliate of Amazon.com Inc., a multinational technology
company. It operates the e-commerce platform Amazon India, which supports
third-party sellers, claimed that Flipkart and Amazon had formed vertical
agreements with their favoured sellers, resulting in the exclusion of
non-preferred traders and sellers from their online marketplaces Many sellers
said they are directly or indirectly affiliated with Flipkart or Amazon.
Allegations under Section 3(4) of the Act:
DVM claimed a violation of Section 3(4) and
Section 3(1) of the Act. Allegedly, the vertical agreements between Flipkart
and its favoured sellers, as well as Amazon and its favoured sellers, resulted
in the exclusion of non-preferred sellers from the online marketplace. They
also alleged that these select sellers had affiliations with or controlled by
Flipkart or Amazon.
The platforms are accused of influencing
prices by providing discounts and inventory to their preferred sellers. They
also gathered data on consumer preferences and allegedly used it to their
advantage, which was considered anti-competitive under Section 3(1) and Section
3(4) of the Act.
Allegations included:
Deep discounting: Flipkart provided deep
discounts to select preferred sellers, adversely affecting non-preferred
sellers. Amazon also offered deep discounts through its preferred sellers,
which were linked to Amazon. Preferential listing: Both Flipkart and Amazon
offered preferential listing to their select sellers, pushing non-preferred
sellers down in search results. Exclusive tie-ups and private labels: Both
platforms had exclusive tie-ups with smartphone companies, which resulted in
exclusivity through discounting and preferential listings, leading to the
exclusion of other competitors.
Market Power:
DVM alleged that Flipkart and Amazon, due to
substantial funding, could subsidize prices on their platforms, creating high
entry barriers for new entrants.
The Informant claimed that the platforms
could unilaterally terminate agreements with non-preferred sellers, creating
unreasonable vertical restraints.
Allegations under Sections 4(2)(a)(ii), 4(2)(b)(ii),
and 4(2)(c):
Both Flipkart and Amazon were alleged to be
jointly dominant in the relevant market and were accused of abusing their
dominance.
They held significant market shares, which
contributed to their dominance.
Their practices restricted services in the
market, created high entry barriers due to network effects, and allowed them to
terminate agreements with their sellers unilaterally.
Based on these allegations, DVM requested an
investigation into the matter, a cease and desist order against Flipkart and
Amazon, and the imposition of maximum penalties under Section 27 of the
Competition Act.
ISSUES:
The issues raised in the case before the
Competition Commission of India are as follows:
Violation of Competition Act: The primary
issue is whether Flipkart and Amazon have contravened the provisions of the
Competition Act, 2002, particularly Sections 3(4), 3(1), 4(2), and 4(1) of the
Act Vertical Agreements: The case revolves around the alleged existence of
vertical agreements between Flipkart and its preferred sellers and between
Amazon and its preferred sellers. These agreements lead to the foreclosure of
other non-preferred traders or sellers from these online marketplaces. The
critical question is whether these vertical agreements are anti-competitive.
Price Influence: Both Flipkart and Amazon
accused of having the ability to influence the prices charged by sellers by
providing discounts and inventory to the sellers. It needs to be determined
whether these practices violate the Competition Act.
Deep Discounting: The case highlights
allegations of deep discounting by Flipkart and Amazon, favouring selects
preferred sellers over non-preferred sellers. The impact of this practice on
competition in the online marketplace is a key issue.
Preferential Listing: Flipkart and Amazon
allegedly provided preferential listing to their preferred sellers, pushing
down the search results for non-preferred sellers. Whether this preferential
treatment harms competition is a central concern.
Exclusive Tie-Ups and Private Labels: The
case raises concerns about exclusive tie-ups between the e-commerce platforms
and smartphone companies, providing exclusivity through discounting and
preferential listings. The consequences of such arrangements on competition are
under scrutiny.
Market Power: The case investigates whether
Flipkart and Amazon's market power, combined with significant funding, allows
them to cross-subsidize and offer pricing below cost. The resulting high entry
barriers for new entrants is an important issue.
Vertical Restraints: The ability of Flipkart
and Amazon to unilaterally terminate agreements with non-preferred sellers and
the resulting unreasonable vertical restraints are been examined.
Dominance and Abuse: Both companies alleged
to be jointly dominant in the relevant market. The abuse of this dominance,
including predatory pricing and data-based targeting of advertisements, is a
central issue.
Competitive Impact: The case questions
whether the practices of Flipkart and Amazon have created an inherently
anti-competitive model for e-commerce. It raises concerns about the exclusion
of other competitors and the impact on the economy.
Investigation and Penalties: The case
requests an investigation into the alleged anti-competitive activities of
Flipkart and Amazon. It also seeks penalties under Section 27 of the
Competition Act if the violations are confirmed.
PROVISION OF LAW:
The provisions of law cited are as follows:
·
Section
3(4) Competition Act, 2002
·
Section
3(1) Competition Act, 2002
·
Section 4(1), 4(2)(a)(ii);
4(2)(b)(ii) and 4(2)(c) Competition
Act,2020
·
Section
26(1) in the Competition Act, 2002
·
Section
27 of the Competition Act, 2002
·
Section
65B Indian Evidence Act, 1872
PLAINTIFF ARGUMENTS:
The Plaintiff's arguments in the case
are as follows:
Alleged Violations of Section 3(4) of
the Competition Act, 2002: The Plaintiff, Delhi Vyapar Mahasangh (DVM),
contends that there is a clear violation of Section 3(4) of the Competition
Act, 2002, read with Section 3(1) and Section 4(2) read with Section 4(1) of
the Act by Flipkart and Amazon. They claim that these violations relate to
various vertical arrangements between the platforms (Flipkart and Amazon) and
their preferred sellers, which result in the foreclosure of other non-preferred
sellers from the online marketplace. It further alleged that these select
sellers have affiliations with or controlled by Flipkart or Amazon.
Anti-Competitive Practices: The
Plaintiff asserts that the online marketplaces Flipkart and Amazon have been engaging
in anti-competitive practices violating Section 3(1) of the Act. These
practices include:
Deep Discounting: Both Flipkart and
Amazon alleged to provide deep discounts to their select preferred sellers,
creating an unfair advantage that negatively impacts non-preferred sellers.
This practice allegedly prevents fair competition in the online marketplace.
Preferential Listing: The Plaintiff
claims that these platforms use preferential listing for their assured or
fulfilled sellers, which discriminates against non-preferred sellers and
affects their visibility and competitiveness in search results.
Exclusive Tie-ups and Private Labels:
Both platforms are accused of having exclusive tie-ups with smartphone
companies, which provide exclusivity through discounting and preferential
listings. According to the Plaintiff, leads to the exclusion of other
competitors from the market.
Market Power and Abuse of Dominance:
The Plaintiff contends that Flipkart and Amazon have significant market power
and are jointly dominant in the relevant market. Their dominance allows them to
engage in predatory pricing through their sellers and to restrict the provision
of services, particularly for Micro, Small, and Medium Enterprises (MSMEs) and
small retailers. They allegedly achieve this by creating a separate
"preferential list."
Data and Network Effects: The
Plaintiff argues that the platforms, due to their market power, have access to
a large data repository. It allows them to target advertisements based on
consumer preferences, further marginalizing their competitors who lack such
access. These practices create high entry barriers on account of network
effects.
Unilateral Termination of Agreements:
The Plaintiff claims that Flipkart and Amazon will have the ability to
unilaterally terminate their agreements with non-preferred sellers without
assigning any reason. This results in unreasonable vertical restraints,
according to the Plaintiff.
Plaintiff alleges that the actions of
Flipkart and Amazon collectively create an inherently anti-competitive model
for e-commerce, involving deep discounts and preferential treatment to select
preferred sellers on their platforms. As a result, the Plaintiff has requested
an investigation into the matter and has urged the Competition Commission of
India to direct Flipkart and Amazon to cease engaging in anti-competitive
activities. The Plaintiff also seeks to impose the maximum penalty under
Section 27 of the Competition Act, 2002, on Flipkart and Amazon.
DEFENDANT ARGUMENTS:
The defendant's arguments in the case
"Delhi Vyapar Mahasangh vs. Flipkart and Amazon" are not explicitly
provided in the text. To give a balanced overview of the case, we should
consider potential defenses and counterarguments that Flipkart and Amazon might
present.
No Violation of Competition Laws: Flipkart and
Amazon could argue that their business practices do not violate the relevant
provisions of the Competition Act 2002. They may contend that their
arrangements with preferred sellers are lawful and do not constitute
anti-competitive behavior.
Consumer Benefits: The defendants
might assert that their practices, including providing deep discounts and
preferential treatment to certain sellers, ultimately benefit consumers by
offering competitive prices and a wide range of products. They may argue that
these practices increase consumer choice and promote healthy competition.
Market Entry and Competition:
Flipkart and Amazon may claim that they have not created high entry barriers
for other sellers or new entrants in the market. They could argue that the
online marketplace is open to various sellers, and they do not engage in
activities that unfairly limit competition.
No Abuse of Dominance: The defendants
may contest the allegations of market dominance and abuse of dominant, arguing
that market share alone does not establish abuse of dominance. They may present
justifications for their market practices.
Data and Consumer Preferences:
Flipkart and Amazon may argue that their use of consumer data is essential for
improving customer experience and tailoring services. They might contend that
this practice is a common industry standard.
No Unreasonable Vertical Restraints:
The defendants could challenge the claim of unreasonable vertical restraints,
arguing that sellers voluntarily enter agreements with them and that these
arrangements are legitimate business practices.
Economic Impact: Flipkart and Amazon
may emphasize the positive impact of e-commerce on the Indian economy,
including the growth of small and medium-sized enterprises (SMEs), by providing
them with a platform to reach a broader customer base.
It's important to note that these are
potential arguments that the defendants might make. Still, the arguments and
defenses presented in court would depend on the specific legal strategy adopted
by Flipkart and Amazon.
FINDINGS:
In the Delhi Vyapar Mahasangh vs.
Flipkart case, the Competition Commission of India addresses allegations of
anti-competitive behavior in the e-commerce market, focusing on Flipkart and
Amazon. The case is brought forward by Delhi Vyapar Mahasangh, representing
MSME traders heavily reliant on online platforms to sell smartphones and
related accessories. The primary allegations revolve around vertical
arrangements, deep discounting, preferential listing, exclusive tie-ups, and
the market power of these e-commerce giants. These platforms are accused of
forming exclusive agreements with preferred sellers, leading to the exclusion
of non-preferred sellers from their platforms and offering deep discounts to a
select few, making it difficult for others to compete—additionally,
preferential listings further disadvantage non-preferred sellers. Smartphone
manufacturers' exclusive launches on these platforms were also questioned for
their potential to exclude competition. The Competition Commission recognizes
the interconnected nature of these allegations and, while dismissing the
concept of joint dominance, calls for a holistic investigation into how these
vertical agreements impact competition. The analysis aims to determine whether
these practices contravene Section 3(1) of the Act, read with Section 3(4).
This case underscores the pressing competition concerns in the e-commerce
sector, where vertical agreements, preferential treatment of sellers, and
exclusive product launches can have far-reaching consequences on both
competition and consumers. The investigation will clarify whether regulatory
intervention is necessary to address these potential anti-competitive
practices.
ANALYSIS:
Allegations of Anti-Competitive
Practices: The case revolves around allegations of anti-competitive practices
by Flipkart and Amazon. These practices include providing deep discounts to
select preferred sellers, preferential listing of products from these sellers,
exclusive tie-ups and private labels, and influencing prices. These allegations
suggest that these e-commerce giants may have engaged in anti-competitive
behavior to the detriment of other sellers.
Market Dominance: The case highlights
the market dominance of Flipkart and Amazon. Both companies were accused of
holding a significant market share in the relevant market. Market dominance can
be a critical factor in competition law, as it can lead to the abuse of market
power. In this case, the market dominance of Flipkart and Amazon is alleged to
have been used to create entry barriers and to promote their preferred sellers.
Data Utilization: The case mentions
that the companies have an extensive repository of data to target
advertisements based on consumer preferences. This ability to leverage data to
their advantage is seen as a source of competitive advantage and potential
anti-competitive behavior. It also highlights the role of data in creating
entry barriers.
Impact on Small Retailers: The case
emphasizes how the alleged practices impact micro, small, and medium-sized
enterprises (MSMEs) and small retailers. These businesses claim to face
restrictions and disadvantages in the marketplace, which can have economic and
competitive repercussions.
Investigation and Penalties: The
Informant has called for an investigation into these practices and has
requested that maximum penalties be imposed under Section 27 of the Competition
Act, 2002. The case's outcome will depend on the findings of the investigation
and whether the allegations are proven to be true.
Overall, this case underscores the
complex nature of competition law, especially in the e-commerce sector, where
issues of market dominance, data utilization, and their impact on smaller
businesses are significant concerns. The critical analysis would require a
detailed review of evidence, legal arguments, and expert opinions to determine
whether the alleged anti-competitive practices have occurred and what actions,
if any, should be taken in response.
CONCLUSION:
The conclusion of this case, as of
the information provided, is that the Competition Commission of India (CCI) has
directed an investigation under Section 26(1) of the Competition Act, 2002 into
the allegations made by Delhi Vyapar Mahasangh against Flipkart and Amazon. The
key findings and allegations in the case include:
The Informant has alleged that
Flipkart and Amazon engaged in anti-competitive practices, including deep
discounting, preferential listing of products from preferred sellers, exclusive
tie-ups and private labels, and influencing prices. Both Flipkart and Amazon
are alleged to hold a significant market share in the relevant market. This
market dominance is considered a factor contributing to their alleged
anti-competitive behavior. The companies are accused of using their large data
repositories to target advertisements based on consumer preferences, which can
create entry barriers for other competitors. The case highlights the adverse
impact of these alleged practices on micro, small, and medium-sized enterprises
(MSMEs) and small retailers, limiting their ability to compete in the
marketplace. The Informant has requested that an investigation be carried out,
and the CCI directs Flipkart and Amazon to cease engaging in anti-competitive
activities. They have also called for imposing the maximum penalty under
Section 27 of the Competition Act, 2002.
The case's conclusion, however, will
depend on the findings of the investigation and the subsequent legal
proceedings. The CCI will assess the evidence and arguments presented by both
parties and determine whether the allegations of anti-competitive behavior are
valid. If the CCI finds merit in the allegations, it may take actions as deemed
necessary to address the anti-competitive practices identified.
Article Information
Delhi Vyapar Mahasangh V. Flipkart Internet Pvt.Lit & Another (2020)
Authors: Ambika Kanwar Sisodiya, Shareeka H S
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/01/06
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
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