Ishita Khandelwal & Parv Pancholi
Introduction
While the general axiom of any competition law regime across the globe deals with the freedom that is permitted to the players to engage in business fairly with the ones that they want and alongside that, they are also granted with the freedom to refuse to deal with the entities at their own discretion. However, this refusal by the dominant players to deal may be construed as engaging into anti-competitive practices by abusing the dominant position. One specific kind of refusal involves refusal to provide with the “essential facility.”
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Unraveling the concept of Doctrine of Essential Features
Speaking generally, the doctrine of essential features practice refers to when an entity/player who holds a considerable monopolistic position in an “essential” or “bottleneck” market is required or mandated to give access to and share some of its resources to the other emerging entities in that specific market in order to thrive into and promote the dynamics of a healthy competition. As its name suggests, ‘essential features’ are the minimal requirements that need to be disseminated to the new entrants slowly trying to carve out a spot for themselves in the relevant market. This doctrine aims to eliminate monopolization and structurally attempts to administer fair competition in the market. Most of the times, it becomes necessary to declutter the essential facilities from the non-essential ones in order to pave the way for encouraging the sharing of facilities.
Abiding by this doctrine becomes essentially crucial in the status quo since the number of dominant players in almost every industry have relatively reduced in the past few years to being just a handful, which inadvertently impedes the start-ups from burgeoning in their respective businesses and alongside that, it also hampers the services being rendered to the consumers. This doctrine reinvigorates the rights of the entities which are still at their nascent stages of development and abstains the monopolists from exercising their absolute power.
Tracing the inception of the Essential Features Doctrine
It is a settled tenet of law that holding a dominant position in the market is not anti-competitive in nature per se. The doctrine has sprouted from the prism of the Sherman Antitrust Act of 1890. It was the first federal legislation that aimed towards restrain the monopolistic trade practices.
The doctrine was first mentioned in the celebrated case of United States v. Terminal Railroad Association Case in 1912, wherein the US Supreme Court propounded the need for the monopolistic company to provide access to the resources to the competing entities. In another landmark ruling of Associated Press case, the court condemned the by-laws of Associated Press to only permit the member newspapers while declining the membership to another set of competing newspapers which in itself paves the way for abuse of the dominant position.
A facility does not become essential merely if it is economical. The plaintiff must show more than inconvenience, or some economic loss and must also show that an alternative to the facility is not readily feasible.
Further, in a catena of succeeding judgements, the court has emphasized that under certain conditions, a monopolistic undertaking has a responsibility to maintain a joint marketing relationship with a smaller entity.
Analysing the doctrine from the international perspective
One of the most bugging issues that the courts have been attending to time and again is determining under what circumstances the right of refusal to deal is lawful.
Primarily, the US Antitrust Law follows the Colgate Principle as set out in the case of U.S. v. Colgate & Co. The court in this case opined that “even a monopolist can exercise its own independent discretion as to the parties with whom it will deal if there is no intent to establish or maintain a monopoly.” However, the exception that runs is that despite the general rule, the monopolistic player needs to provide a viable and legitimate reason for refusing the deal.
Trailing along the footsteps of the U.S. law, the European Law also inculcated the essential features doctrine into its antitrust regime. It is the first jurisdiction after the US to hold an entity liable for not complying with the doctrine of essential features. However, when the doctrine is compared between the two jurisdictions, there are a multitude of aspects that are in divergence.
The first case in European Union (EU) where the doctrine was analysed exhaustively was the Sealink case, wherein the European Court of Justice (ECJ) stated that if an undertaking controlling a facility denies its other competitors with the facilities or provides less access in order to maintain its dominant position, then it would be construed as the abuse of the dominant position. In one of the celebrated cases of Microsoft v. Commission, the EU held Microsoft at liability for abusing its dominant position in the market and not disseminating interoperability information that was a prerequisite for any software developing entity that tried to set up its operations into a Microsoft system. The court, as a result, held Microsoft liable for abusing its dominant position.
Scrutinising the doctrine vis-à-vis the Indian Competition Regime
The concept of essential features in the competition tapestry of India is not something written on a palimpsest. The mention of this doctrine is more prevalent in the Patents Act, 1970 than with respect to the currently prevalent Competition Act. The Indian competition fabric prohibits the entities to abuse their position in the relevant market under Section 4 of the Competition Act 2002.
Through a catena of judgements, the Competition Commission of India (CCI) has time and again adjudicated upon the need for inculcating the essential facilities doctrine into the competition fabric in the Indian scenario. Even though a large proportion of competition scholars have favoured for this doctrine, yet there are certain brickbats against the doctrine.
Even though the essential features doctrine attempts to inject cooperation between the entities but, in turn it can lead to formation of even larger enterprises with the coalition of two or more massive entities of the relevant market. Another major issue with the doctrine could be with regards to setting the dominant enterprises into a disadvantageous position. Since, the dominant entities are encouraged to go hand in hand with the other entities of the relevant market, the competition regulatory authorities expect these big entities to share the result of their dynamic innovation ideas with their competitors.
Section 4(2)(e) of the Competition Act prohibits the giant entities from using its dominance in a particular relevant market in order to set its foot into another market. Another provision relevant with regards to the essential features doctrine is section 3(4)(d) of the Act which mentions about the refusal to deal clause if the pre-existing dominant entity forms a dent in the market place in the form of appreciable adverse effect. In one of the celebrated landmark judgments of Arshiya Rail Infrastructure Limited (ARIL) v. Ministry of Railways (MoR), the CCI was of the view that the essential features doctrine would not be applied in the cases where a concrete reason is in absence. There has to be a wanting in of a tangible reason or otherwise, it could result into unfairness for either or both the parties in question. In another judgement of Shri Shamsher Kataria v. Honda Siel Cars India Ltd. & Ors., CCI was vested with the question as to whether it was necessary on the part of the dominant enterprise to share its resources to the other emerging entities in the relevant market. The Director General (DG) in his report after investigating into the case also contended that the dominant car manufacturers were bound to provide access to the spare parts and diagnostic tools. The CCI further passed the order mandating the car manufacturers to incorporate the essential features doctrine. The rationale behind passing this order was that in order to create a level playing field for all the entities, it is necessary to first bring all of them at the same pedestal.
Most of the cases that have been decided in the past circumventing this doctrine have been set on an ad hoc basis by the Commission. It is necessary to find out whether the facility in question is essential per se or not. It becomes prudent on the part of CCI to discharge its powers as mentioned under Section 64 (1) of the Competition Act, 2002.
Concluding Remarks
Despite being a principle that is proportionately novel in the current Indian competition regime, the doctrine of essential facilities becomes necessary to incorporate it in order to ensure the smooth functioning of the economy and avoiding any impediments that may arise in the market. A flexible competition regime benefits not only the emerging market entities but also provides the consumers with a wide array of options to choose from. Even though the scope of the doctrine might take some time to sink in practically in the Indian competition regime, yet in the longer run it would improve the quality of products and would eventually reduce the cost of goods and services.
References:
http://neconomides.stern.nyu.edu/networks/ShermanClaytonFTC_Acts.pdf.
https://supreme.justia.com/cases/federal/us/224/383/.
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https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A31994D0019.
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https://supreme.justia.com/cases/federal/us/250/300/.
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Article written by Ishita Khandelwal and Parv Pancholi, 4th year B.A.,LL.B and B.B.A.,LL.B (Hons.) students respectively at National Law University Odisha.
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