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Navigating Competition: Unraveling Pricing Dynamics in India’s Legal Landscape

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ABSTRACT: 

The introduction of new technologies promises a number of advantages from the perspective of competition, including more competition, cheaper costs, a greater selection of goods and services, etc. These claims of procompetitive benefits, however, frequently serve as a cover for the potential anti-competitive consequences that these technologies carry. One such invention that should encourage more market competition is pricing algorithms. But these algorithms are frequently just instruments for manipulating market pricing. 

It is now simpler to carry out anti-competitive agreements and avoid legal action because to algorithms. The use of pricing algorithms to carry out price-fixing agreements is now known worldwide for its anti-competitive effects. It is surprising, nevertheless, that the Competition Commission of India disregarded, without conducting a thorough investigation, a similar complaint against Ola and Uber (cab aggregators). The informant said that taxi drivers and cab aggregators fixed market rates for taxi fares by agreeing to use an algorithm to calculate prices. 

This amounts to hub-and-spoke cooperation, which is anti-competitive in nature, claims the Informant. This argument was denied by the Commission, which maintained that a clear agreement between the hub and spokes to coordinate on price is necessary for this kind of collusion. In my opinion, this is essentially predicated on a misinterpretation of the Commission. Given that comparable algorithm-based agreements are currently permeating the market, it is important to give the matter another look in order to guarantee that competition is encouraged in the marketplace. In this essay, I aim to evaluate the Commission’s order and make the case that the contract between taxi aggregators and their drivers tends to stifle competition by setting market rates. An arrangement of this kind is therefore anti-competitive. 

 INTRODUCTION:  

Every day, a new and inventive technology emerges from the market as science advances. These technologies are widely accepted and frequently provide a plethora of benefits and promises. These days, more people than ever use the internet, big data, artificial intelligence, and frequently unknown pricing algorithms. They appear to provide a host of procompetitive benefits, including better quality, price comparison, and a greater selection of goods and services at significantly reduced costs, from the perspective of competition. It is simple to become blindsided by the abundance of procompetitive benefits that are touted and neglect the necessary research into the potential effects that these technologies may have on competition. 

In order to address the Competition Law challenges appearing in this new digital market, this compels us to reconsider and reinterpret the policies pertaining to Competition Law and to implement adjustments that have been badly lacking. 

 UNDERSTANDING THE ALGORITHM:  

There are four ways that algorithms can be used to facilitate collusion, according to the legal literature that is currently available: employing computers as messengers; hub and spoke collusion; implicit cooperation by using computers as predictable agents; and using artificial intelligence as a digital eye.In the first case, algorithms are only employed to carry out the wishes of humans. After humans get into an agreement, computers or algorithms are used to carry it out or keep an eye on it. The easiest type of collaboration to prove is this one. In the second scenario, spokes and a central hub make vertical agreements. 

The spokes do not actually need to agree for this to happen. In the third case, rivals employ a single pricing algorithm with the knowledge that other competitors are following suit. Since the pricing of the products on the market are determined by this algorithm, all competitors will set their prices at the same amount. Nonetheless, there isn’t a clear contract between rivals to set market prices. The artificial intelligence that is being deployed in the final scenario will control prices on its own. There is no requirement for any anti-competitive agreement or intent on the part of the parties. 

The 2015 case of USA v. David Topkins1 was the first recognition of the crime of price-fixing through the use of a pricing algorithm. Topkins entered a guilty plea for manipulating poster pricing on the Amazon Marketplace through the use of complex algorithms2 Since then, there has been a great deal of controversy over the use of pricing algorithms to violate antitrust laws. We need to reconsider the idea that collusion is restricted to discussions in smoky rooms in light of such algorithm-based cartels. 

Since then, there has been a great deal of controversy over the use of pricing algorithms to violate antitrust laws. We need to reconsider the idea that collusion is restricted to discussions in smoky rooms in light of such algorithm-based cartels. The European Commissioner for Competition Margrethe Vestager and the President of the German Federal Cartel Office, Andreas Mundt, have acknowledged in statements that businesses are using algorithms to facilitate collusion and that they shouldn’t be able to use these tools as a cover for breaking anti-competitive laws. 

This leads to the conclusion that, since price fixing agreements are anti-competitive, it makes no difference if they are carried out through intermediaries like pricing algorithms. This is now acknowledged by all legal systems, and the United Kingdom, Singapore, Russia, and the European Union have all reached identical judgements. 

 SCENARIO IN THE INDIAN MARKET:  

Despite the fact that pricing algorithms have an anti-competitive effect that is becoming widely acknowledged, India appears to be lagging behind in this regard. The Competition Commission of India issued an order in November 2018 dismissing the claim that Ola and Uber (collectively, the Cab Aggregators) colluded using pricing algorithms.3 

In this instance, the informant maintained that the Indian Competition Act’s provisions are broken by the Cab Aggregators and the drivers’ sharing of a hub and spoke collusion to fix the cab fare in the market. The commuter and the driver are connected via mobile applications by the Cab Aggregators. The motorist that is closest to the commuter receives an automatic ride offer via the application. The commuter makes an offer, which the driver can accept or reject without having to haggle over. The offer is made to the next nearest driver if the driver does not take it within 15 seconds. This process keeps going until a driver decides to accept the offer. 

The Cab Aggregators determine the rate for the ride based on a number of variables, including time, distance, surcharges, and tolls, using a particular pricing algorithm. Here, drivers agree to accept the fare determined by the pricing algorithm by signing the Drivers Terms and Conditions. There is no room for negotiation on the part of the commuter or the driver. The informant maintained that the drivers and the taxi aggregators are fixing pricing by doing this. Section 3(3)(a) in conjunction with Section 3(1) of the Competition Act is violated as a result, as agreements that “directly or indirectly determine purchase or sale prices” are forbidden. But the Commission dismissed the case after rejecting this kind of accusation.  

The Commission claims that a hub-and-spoke arrangement necessitates an explicit pricing-fixing conspiracy. Here, sensitive data is shared between the hub and spokes via a third-party platform. In the case of ride-sourcing or ride-sharing services, a hub-and-spoke cartel will need the platform to coordinate prices amongst the drivers or an agreement to set prices through the platform.But in this instance, the price is established by the Cab Aggregators’ pricing algorithm, which takes into account the rider’s specific information as well as other factors like traffic, time of day, and so on. According to the Commission, there isn’t a formal agreement between the drivers to set costs, thus there isn’t any hub-and-spoke collusion. But it appears that this interpretation of the Commission is incorrect. 

Three conditions must be satisfied, under the Indian Competition Law, in order to prove that a cartel is anti-competitive. First, a coordinated action that suggests a conspiracy must be taken; second, this agreement must result in market price fixing; and third, this agreement must have the goal of limiting or completely eliminating competition in the market.4 It is further contend that these conditions are met in the Uber and Ola case. 

 PRICE FIXING AND RESTRICTION IN THE MARKET:  

Price-fixing cartels pose a serious risk to the level of market competition. Consequently, certain jurisdictions adhere to what is commonly referred to as the per se norm. This means that a price-fixing cartel’s very existence is anti-competitive in and of itself.5 Nonetheless, the rule of reason—which states that the effect a price-fixing agreement has on market competition determines its legality—is upheld by Indian jurisprudence. 

The nature of the restriction and its real or expected effects must be examined in order to comply with the rule of reason.6 The onus is on the Opposing Party (in this example, Uber and Ola) to prove that the existence of a price-fixing agreement has no anti-competitive effects once it has been established. 

The primary issue with pricing algorithms is that they make it simple to monitor and enforce anti-competitive agreements that are impossible to carry out in any other way. Algorithms essentially facilitate the execution of anti-competitive agreements and legal evasion. This was seen in the Competition and Markets Authority (CMA) dispute involving Trod and GB Eye Limited. 

According to the European Commission, it is anti-competitive to use price algorithms to limit market competition. Four UK firms forced their online retailers to pay minimum or fixed retail pricing. Algorithms for price fixing were employed to enforce the same. The manufacturers limited the retailers’ ability to compete with one another by imposing this agreement on them, so limiting market competition.7 

The manufacturers effectively limited competition in the market by enforcing the same agreement on the retailers through price fixing algorithms, which the Commission deemed to be an anti-competitive price fixing agreement. This case underscores the potential threat posed by pricing algorithms because it is simple to enforce anti-competitive agreements without leaving significant evidence. 

By imposing the same agreement on the retailers using price-fixing algorithms, the manufacturers effectively reduced competition in the market. The Commission considered this to be an anti-competitive price-fixing agreement. Because it is easy to enforce anti-competitive agreements without leaving significant proof, this case highlights the potential threat posed by pricing algorithms. 

The drivers would be able to engage in pricing competition to foster a healthy level of competition8 But rather than doing this, Uber uses its pricing algorithms to set fares for the drivers. An agreement to fix prices like this is intended to limit market competition. The competition is significantly harmed by this. Thus, it can be deduced that the Cab Aggregators employ these algorithms in an effort to eradicate market rivalry. 

 LANDMARK CASES:  

  • Coal India Ltd & Anr. v. Competition Commission of India & Another (Supreme Court – June 2023): Context: After a ten-year legal battle, the Supreme Court clarified that the provisions of the Competition Act, 2002, apply to Coal India Ltd (CIL) and similar public sector undertakings. Significance: This decision confirmed the Competition Commission of India’s (CCI) jurisdiction to investigate and take measures against statutory monopolies (like CIL) in abuse of dominance case. 
  • Telefonaktiebolaget LM Ericsson (PUBL) v. Competition Commission of India & Another (Delhi High Court – July 2023): Context: The Delhi High Court held that disputes related to allegations of anticompetitive conduct in patent licensing cannot be examined under the Competition Act but should be addressed under the Patents Act, 1970. 
  • Institute of Chartered Accounts of India v. Competition Commission of India & Others (Delhi High Court – June 2023): Context: The CCI’s jurisdiction was challenged regarding its authority to examine decisions made by other statutory regulators.Outcome: The Delhi High Court ruled that the CCI does not have jurisdiction to review decisions made by other regulators, emphasizing the need for clarity on overlapping jurisdictions. Impact: This decision effectively barred the CCI from examining disputes related to patent licensing terms and conditions. Licensees must now approach the Controller of Patents for such issues. 

 WAY FORWARD:  

The Competition Act states that an agreement does not have to be official, written, or expressed. As a result, the concept of an agreement is extremely inclusive. The standards in the event of a hub-and-spoke collusion are further relaxed. The hub of a hub and spoke collaboration must carry out a single, unlawful scheme. The hub and spokes come to an agreement for this. It is not necessary for the spokes to come to an agreement with one another. It is presumed that the spokes agreed to and took part in the hub’s strategy as they engage into an agreement with the hub knowing that additional spokes will follow suit. 

The drivers are the spokes in the Uber and Ola models, and the Cab Aggregators are the hub. The drivers consent to utilise the hub’s pricing algorithms, aware that other market spokes have already consented to use the same algorithm. This will be considered a legitimate agreement between the Cab Aggregators and its drivers in accordance with current jurisprudence on hub and spoke collusions. 

The Cab Aggregators’ pricing algorithms are used to determine market rates for fares. This is an all-inclusive fare. The commuter and the driver must agree on this fare price. This is definitely a price-fixing pact, no question about it. It appears that the Commission has acknowledged that Cab Aggregators utilise the algorithm to set market rates. The main point of contention in this topic is how such a price-fixing agreement hurts competition. 

The current situation was not comprehended by the Commission. It found that there cannot be collusion in the absence of an explicit agreement and emphasised the necessity of having one. Furthermore, a hub-and-spoke collusion eluded the Commission as well. The agreement between the hub and spokes to share confidential data via a third-party platform is considered a kind of collusion. In order to use the platform to set market prices, all drivers must also agree to do so. This, as was previously mentioned, is untrue. To encourage more competition in the market, it is important that the Commission gains a deeper comprehension of the matter. 

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.” 

 Written By Riddhi S Bhora

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Colourable imitation of a product shall be restrained : Delhi HC

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Citation : CS(COMM) 757 of 2023

Decided On : 19th October, 2023

Coram : Justice Prathiba M. Singh

Introduction :

The plaintiff filed a suit under the XXXIX Rules 1 & 2 CPC to restrain the defendants from using the design and selling the products on online platforms. The plaintiff had given an opportunity to resolve the dispute prior to the defendant but upon having no response, filed a suit in the HC of Delhi

Facts:

Sunshine Teahouse, the plaintiff is the owner of the popular brand name Chaayos and also runs and maintains cafes with tea, snacks, beverages etc. The name “CHAAYOS” was registered in the year 2017 after adopting it in 2012. The plaintiff has also manufactured and launched various other products under the same brand name. The products are manufactured and marketed in their own distinctive style with different flavour names. 

The plaintiff had a successful turnover of Rs.10 cr in the year 2022-23 for under the brand name “CHAAYOS” and has also sold various other goods in different countries. They have a website under the domain name, www.chaayos.com and sell their products in various other platforms including Amazon, flipkart, Bigbasket, Instamart etc.

The defendant, Grey Mantra Solutions sells their tea based products on online platforms and the plaintiffs have alleged the defendants in selling their products online in amazon under the name “TEACURRY” and “JUST VEDIC”

The plaintiff claimed that the defendant had copied and adopted distinctive elements of their packaging and the design format. The word “Chaai” and “masala” in both the manufacturers were alike including the colour combination, writing script, and the depiction of flavour in pictorial format.

Courts Analysis and Judgement:

 The court observed that there is a physical resemblance between the products manufactured by the plaintiff and the defendant. The defendant had acted with malafide intention and has imitated the plaintiff’s products. It was also observed that the defendant had done it to present their products is the same as the plaintiff and had copied the online listings as well.

The court passed an order and directed the defendant to restrain from manufacturing, selling the products which have copied elements of “CHAAYOS” and the online listings to be taken down within a week from the date of passing the order as there is no colorable distinction present.

The matter would be next listed on 29th January,2024

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Written by- Sushant Kumar Sharma

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Cartels and Competition Law in India

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Abstract

This Article gives an analysis on the topic of cartel and their nature and new era cartels. It also looks into the matter of impact of cartels on the competition in a market and how Indian competition law comes in rescue of market from the impacts of cartel and lastly, we would discuss the recent amendments to the competition act regarding cartel operation.

Introduction

A cartel is a group of similar independent companies who join together to control prices and limit competition[1] for example, Oil cartels like OPEC or OPEC+, they manage and influence the prices of crude oil all around the globe.

Definition & Nature

Cartel has been defined under section 2(c) as –

“an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services”[2]

The General nature of a cartel involves increase in the profitability of its members and overall increase in the strength of cartel in the market. These cartels usually undertake four forms of activities to influence the market, they are –

  • Price Fixing, includes determination of Price for commodity, setting a minimum resale price etc
  • Collective bidding
  • Sharing of markets as per areas or sectors or products
  • Controlling production

Laws on cartel

Cartel arrangement which aims at distortion of competition through controlling market conditions and determining prices are held illegal per se and violative of competition act. These arrangements are clearly violation of Section 3 of the competition act which prohibits all those agreements which causes or likely to cause AAEC[3].

Now, referring to the definition, It is quite clear that these cartels are based out off agreement and as per section 2(b) of the act as –

“agreement” includes any arrangement or understanding or action in concert[4]

Generally, these agreements are not based out in a formal setting, when it aims to control the market, they are based out in a clandestine manner usually behind the closed door so, proving its existence is usually difficult but as per the Raghavan Committee “there is no need for an agreement to be formal or written to be considered illegal. In principle any kind of agreement is illegal if it violates law.”[5]  And similar view has also been held in the case of Director General (Supplies & Disposals) v. Puja Enterprises, 2013 SCC OnLine CCI 55, “It may be observed that the definition of ‘agreement’ as given in section 2(b) of the Act requires inter alia any arrangement or understanding or action in concert whether or not formal or in writing or intended to be enforceable by legal proceedings. The definition, being inclusive and not exhaustive, is a wide one. The understanding may be tacit, and the definition covers situations where the parties act on the basis of a nod or a wink”[6].

And to prove the existence of these arrangement there is need of evidence but usually finding direct evidence in these situations is usually difficult and next to impossible as these arrangements are so clandestine in nature that many times evidences are destroyed. So, finding its whole existence is under the shades and it could only be proved trough various circumstantial evidence implicating the existence of such arrangement. As the same thing has been observed in Director General (supra) “There is rarely a direct evidence of action in concert and the Commission has to determine whether those involved in such dealings had some form of understanding and were acting in co- operation with each other. In most cases, the existence of an anti-competitive practice must be inferred from a number of co-incidences and indica which, taken together, may, in the absence of another plausible explanation, constitute evidence of the existence of an agreement.[7]” and Hon’ble SC in Rajasthan Cylinders & Containers Ltd. vs UOI (2020) 16 SCC 615 “There may not be a direct-evidence on the basis of which cartelisation or such agreement between the parties can be proved as these agreements are normally entered into in closed doors. The standard of proof which is required one of Probability,”[8]

Here, standard of probabilities is such that for a fact is said to be true when either the court believes it to be true or its existence is so probable that any prudent man, ought under the circumstances of a particular case, to act upon the supposition that it exists meaning if a prudent man would be given similar circumstances to dealt with then the analysis of the given circumstances would make him conclude about the existence of a cartel. These circumstantial evidences might include, parallel business behaviour, exchange of sensitive information etc.

The competition law in India proscribes all those arrangement which causes or likely to cause AAEC and Cartels are always presumed to AAEC, as has been held by Raghavan Committee that “The presumption is that such horizontal agreements and membership of cartels lead to unreasonable restrictions of competition and may, therefore, be presumed to have an appreciable adverse effect on competition.”[9] And also held in FICCI – Multiplex Association of India v United Producers/Distributors Forum(2009), where Commission specifically held that Cartels are most pernicious form of arrangement and they are presumed to AAEC under section 3 (3) of the act.[10]

Indian Laws on competition have provision to tackle the problems posed by Horizontal and Vertical agreement and it also has provisions to make them liable for their actions as Section 27 provides for imposition of penalty for formation of cartels which could amount to three times or ten percent of the profit in the year of agreement, whichever is higher. And Commission has powers to initiate Investigation under section 26 of the act.

It may seems like the competition act got enough teeth to bite threat to competition but that’s definitely not the case in real world as many times these cartels form indirect arrangements for collusion, commonly known as a Hub & Spoke Cartel, where a Hub provides all the necessary support for the existence and survival of cartel, its support ranges from providing sensitive information among rivals, calculating prices, organising meetings etc. and all these activities are connected to spokes which cooperatively controls the market. In this new era there is generally an involvement of an Algorithm which usually works as a hub for the enterprises and creates a cartel, these arrangements are generally tacit in nature thus forming an tacit algorithmic cartel. CCI has also explained these arrangement as “A hub and spoke arrangement generally requires the spokes to use a third-party platform (hub) for exchange of sensitive information, including information on prices which can facilitate price fixing. For a cartel to operate as a hub and spoke, there needs to be a conspiracy to fix prices, which requires existence of collusion in the first place, earlier mentioned arguments clearly indicates these circumstances which proves the existence of hub and spoke cartel. It also held that a hub-and-spoke cartel would require an agreement between all parties to set prices through the platform, or an agreement for the platform to coordinate prices between them”[11]

Prior to the amendment, Competition law only prohibits arrangement between traders at same level of production meaning it covers only Horizontal agreements but this Hub & spoke arrangement has element of both horizontal and vertical arrangement thus it lacks powers to penalise the offenders leading disruption of competition in the market. But after the competition amendment act 2023, it has amended the definition of cartel in section 3(a) of the act as –

“Provided further that an enterprise or association of enterprises or a person or association of persons though not engaged in identical or similar trade shall also be presumed to be part of the agreement under this sub-section if it participates or intends to participate in the furtherance of such agreement.”[12]

After this amendment any arrangement between enterprises aiming at disruption of competition would be prosecuted irrespective of their position in the production level, irrespective of the nature of trade or business conduct of the enterprises meaning all kinds of tacit algorithmic cartels would be prosecuted with provisions of penalty as per section 27.

Conclusion

This amendment is in right direction as the time is changing, and with more influence of technology in the business. It would eventually create new loop holes to exploit by these violators of competition, thus to maintain fairness, equity and uphold the law of natural justice, strong steps had to taken in order to tackle and empower the commission in maintaining the just level field of competition in the market.

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”

Written By – Shreyanshu Gupta

[1] https://dictionary.cambridge.org/dictionary/english/cartel

[2] Section of 2(C) of the Competition Act 2002

[3] Appreciable Adverse Effect on Competition

[4] Section 2(b) of the Competition act 2002

[5] Para 4.3.2 of the Raghavan Committee

[6] Para 25, Director General (Supplies & Disposals) v. Puja Enterprises, 2013 SCC OnLine CCI 55

[7] Para 26, Ibid

[8] Para 81, Rajasthan Cylinders & Containers Ltd. vs UOI (2020) 16 SCC 615

[9] Para 4.3.8, Raghavan Committee

[10] Para 23.6 FICCI – Multiplex Association of India v United Producers/Distributors Forum(2009)

[11] Para 18 Samir Agarwal vs ANI Technologies 2018 SCC OnLine CCI 86

[12] Section 3 (a) of the Competition amendment act 2023, https://www.cci.gov.in/images/legalframeworkact/en/the-competition-amendment-act-20231681363446.pdf