Ahuja v. Snapdeal: Decoding the E-commerce Anomaly

– Kastubh Madhavan[i]

Introduction

The concept of E-commerce in India is assuming huge proportions. The use of websites for shopping is a growing trend among Indian consumers. Various online shopping festivals claiming to provide massive discounts are becoming common and are adopted by all major players in E-commerce such as Flipkart, Amazon, Snapdeal etc. E-commerce in India is expected to cross the mark of $100 Billion by 2020.[ii]

There is much more to E-commerce than just convenient home delivery based shopping. The traditional brick and mortar stores are feeling tremendous pressure from these newly developed shopping platforms that have skyrocketed to success in a short time. There are many issues that have been raised against the E-commerce players such as predatory pricing, problem of exclusivity agreements etc.[iii]The case of Ahuja v. Snapdeal[iv]also tries to explore the issues relating to E-commerce in India with respect to the competition law framework.

About the Case

Parties:Ashish Ahuja, the informant in the case, was engaged in the sale of data storage devices such as pen drives, hard disks etc. among other things. He filed information against Snapdeal.com (‘Snapdeal’) and SanDisk Corporation (‘SanDisk’) before Competition Commission of India (‘CCI’) under Section 19(1)(a) of the Competition Act, 2002.[v] Snapdeal is an E-commerce major which provides an online platform to various sellers to sell their respective products on a commission basis. SanDisk is engaged in manufacture, distribution and sale of various data storage devices such as pen drives, solid state drives, SD cards etc.[vi]Ashish Ahuja was alleging a violation of Sections 3 (Anti-competitive agreements) and 4 (Abuse of dominant position)[vii] of the Competition Act, 2002 by Snapdeal and SanDisk.

Background: Ashish Ahuja used to sell various products through Snapdeal, in the process of which he used to purchase SanDisk products from open market and sell them through Snapdeal. Snapdeal eventually refused to sell these products and took them off its website. Mr Ashish Ahuja was informed that SanDisk had given a list of authorized channel partners and only such partners could sell SanDisk products through Snapdeal. He was asked by Snapdeal to obtain a ‘No Objection Certificate’ (‘NOC’) from SanDisk if he wanted to get his products listed back on Snapdeal. It is against the backdrop of this scenario that CCI was approached by the informant who alleged that:

  1. Snapdeal and SanDisk were forcing him to become an authorised dealer of the latter as even on assurance that he will sell only openly available SanDisk products, a requirement of NOC was put forward by Snapdeal; and
  2. He was being prevented from offering competitive prices on the products in question, whereas other players were selling the same products at prices higher than his.

Issues

While CCI did not delineate specific issues, but they can be laid down as follows:

  1. What is the relevant market in the case considering the emergence of online shopping and its fundamentally different character from offline shopping?
  2. Whether SanDisk and Snapdeal are dominant players within the determined relevant market?
  3. Whether the practice of limiting sale by authorized sellers on online portals by SanDisk can be considered as abusive?

Analysis

Arguments by the Parties: The basic contention by Ashish Ahuja was that even on assurance that he will only sell SanDisk products openly available in the market, Snapdeal was demanding an NOC from him which by implication meant that he had to become an authorized dealer of SanDisk. He also produced the letter issued and circulated by SanDisk in market stating that no after sales, warranty support or services will be provided for SanDisk products not purchased from or through authorized network partners irrespective of their genuineness. This as per the informant, was a move to create monopoly wherein only products could be sold by the authorized sellers or only if the product is purchased from them and not from open market.

With respect to Snapdeal, the contention was the fact that there were 13 sellers selling SanDisk products on the website against only 4 declared authorized network partners by SanDisk and thus Snapdeal was targeting the informant. SanDisk was charged of abusing its dominant position regulating not just the mode of sale but also the price of its product through the letter to benefit the authorized dealers and thus preventing Ashish Ahuja from offering competitive prices for the same products.

Reasoning by CCI: Going in an issue wise manner, CCI initially determined the relevant product market to be that of small-sized consumer storage devices.[viii] Paragraph 16 of the order is very important with respect to the E-commerce debate. Here CCI, while considering the nature of  online markets ruled that it is just a ‘different channel of distribution’ and is not a separate relevant market different from offline markets as the consumer can buy the products either online or offline depending on offers and convenience.[ix]

Dealing with the question of abuse of dominant position as prescribed under Section 4 of the Competition Act, 2002 CCI determined that SanDisk was a market leader in the relevant holding 35% market share but the market was not concentrated as there were other players also. The step of ensuring sales on online portals only through authorised distributors was considered as necessary to preserve the quality, goodwill and brand name by CCI. CCI also observed that it is ‘a normal business practice’ to limit services offered only to products purchased from authorized dealers.[x]

In the case of Snapdeal, CCI observed that considering the nature of E-commerce and presence of multiple players in the market, Snapdeal was not a dominant player. Regarding the specific issue of Snapdeal permitting sellers other than the 4 authorized network partners of SanDisk, CCI observed that there was no evidence to show that these sellers had not originated from the authorized dealers, which satisfied the requirement of SanDisk’s letter.

Conclusion

CCI observed that the actions of SanDisk and Snapdeal could not be considered as violating the provisions of Sections 3 and 4 of the Competition Act, 2002 and the information was ordered to be closed.

Impact of Ahuja v. Snapdeal on E-commerce Regulation

While the observation regarding SanDisk’s practice of providing support and services for only products sourced through authorized dealers seems a very fact based determination that can happen in case of offline purchases also. So far as the aspect of E-commerce is concerned, the important observation is the recognising online shopping platforms as just another channel of distribution and not as a different relevant market. This has major impact on regulating competition, as in the relevant market of retail it has been stated that market share of E-commerce is infinitesimally small and comes to around 0.5% of the retail market.[xi]In this manner, e-commerce giants like Flipkart, Snapdeal, Amazon etc. cannot be said to be dominant player which is a prerequisite condition if one seeks to proceed for anti-competitive practice against them. In a more recent example, Reliance Jio which is providing free services to its subscribers, is not considered to be adopting predatory pricing because it is not a dominant player.[xii] Thus, so long as this position stands, E-commerce entities will not be dominant players in the current scenario.

[i]5th Year, BBA LLB (Business Law Hons.), National Law University Jodhpur

[ii] Rohitashwa Prasad, Gerald Manoharan, and Nidhi Sahay, Topical Issues in the Regulation of E-commerce in India, USIBC Legal Services Newsletter, available at http://www.usibc.com/sites/default/files/Files/blog/LegalServices_Newsletter.pdf, last accessed on 13 November, 2016

[iii]Mohit Manglani v. Flipkart India Private Limited & Ors., Case No. 80 of 2014

[iv]Ashish Ahuja v. Snapdeal and Anr., Case No. 17 of 2014

[v]§ 19(1)(a) of Competition Act, 2002 provides the authority to CCI for initiating inquiry into allege contravention of Sections 3 and 4 of the Act on information provided by any person, consumer/consumer association or trade association.

[vi]¶ 3, supra note iv

[vii]§§ 3 & 4, Competition Act, 2002

[viii]¶ 15, supra note iv

[ix]¶ 16, supra note iv

[x]¶ 20, supra note iv

[xi]Divye Sharma, Competition Law and E-commerce: A Concern for the Future, (Mondaq, 27 May 2015) available athttp://www.mondaq.com/india/x/400368/Antitrust+Competition/Competition+Law+And+ECommerce+A+Concern+For+The+Future, last accessed on 24 November, 2016; also see CRISIL Opinion, e-tail eats into retail, (CRISIL, February 2014) available at http://www.crisil.com/pdf/research/CRISIL-Research-Article-Online-Retail-Feb14.pdf, last accessed on 24 November, 2016

[xii] Upasana Jain, Reliance Jio: TRAI official says predatory pricing doesn’t apply, (Livemint, 22 September 2016) available at http://www.livemint.com/Companies/uhVdHDDwGV5v7XiDE7GlPL/Reliance-Jio-Trai-official-says-predatory-pricing-doesnt-a.html, last accessed on 27 November, 2016

Disclaimer: This article has been written by a member of Centre for Competition Law and Policy. The article is just an opinion of the Author and no legal consequences follow from the same.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s