Explained: Google-CCI saga and Competition Commission's shortcomings

With Google alleging that CCI copy-pasted an order passed by European Union's General Court, gaps in manpower and capacity at CCI have surfaced

It is surprising that Google waited for two months before appealing in court against the order by the Competition Commission of India (CCI) asking it to pay a penalty of Rs 1,337 crore.

It is, however, not surprising that the National Company Law Appellate Tribunal (NCLAT) refused to give an immediate stay. The two-judge bench noted that if Google could wait for so long, it could jolly well wait a bit more, in this case, February 13 for a regular hearing.

With the NCLAT order, the company was faced with a difficult choice. Either pay up at least 10 per cent of the penalty, potentially admitting guilt, or appeal before the Supreme Court. It has chosen the latter.

Ex ante Regulations:

The case looks decidedly simple. But that is where the problem could possibly be. Has the CCI applied its mind or has, as Google claims, allegedly “copy-pasted” an order passed by the European Union’s General Court, in September? The CCI order was issued in October.

In 2022, CCI was caught in a tussle between another three big companies, this time in the retail sector. Reliance Industries' arm, Reliance Retail, and Amazon were in a dog fight over who will win the ownership of Future Group company — Future Retail. The case also got entangled into a Swadeshi versus Videshi question.

Or a little earlier, there was another case where Maruti Suzuki had allegedly stifled competition with its policy of controlling the discounts dealers could offer customers.

Why have these problems emerged? Is the fair market regulator behind the curve in moving to ex-ante guidance of business rather than perceiving its role as that of another court?

This piece does not set out to hold any brief for Google, but going by the latest annual report of the CCI, its record on enforcing discipline or compliance made by adopting a judicial role is not encouraging.

In three years, FY20, FY21, and FY22, the total monetary penalty imposed by CCI is Rs 1,788 crore, of which only 7.3 per cent has been realised. As the chart shows in half the cases, and that includes big ones like that passed against alleged anti-competitive conduct by Maruti Suzuki India Limited in implementing discount control policy vis-à-vis dealers, the parties have obtained stay from NCLAT.

Instead of enforcing orders, would an alternative approach help? A regulator, in most cases should not be a court, but one that spurs the development of the market.

“You need regulators also to be aligned with that change, recognise that change, and be ready for it”, said finance minister Nirmala Sitharaman last year, defining the role of the regulators at a book release event.

Making the same point, OECD in a background paper (December 2021) on the role of regulators has noted “competition law enforcement is perceived as less effective in solving digital competition concerns, and this has spurred a debate about how and whether to regulate, and proposals to intervene with ex-ante regulation have multiplied”.

It is significant that the club of developed countries has made these points in the context of regulation of digital companies, despite recognising the “rise in market power and the growing influence of the large digital platforms within and beyond the marketplace”.

This becomes clear from a perusal of the Competition Act, under which CCI operates, and the economic rationale thereof.

What is a market

Under the Competition Act, the CCI’s rationale for examining any case is supposed to be anti-competitive behaviour. What is anti-competitive behaviour? Before one can even begin to answer the question and CCI’s reply in many cases of “abusive practices”, there is a challenge.

At its heart, defining what is anti-competitive depends on what is the definition of a market. A market is not a physical infrastructure. It is a place, where the buyers and sellers converge to buy products—goods or services. The critical element for a market to operate is therefore a commodity called information. Both buyers and sellers must have full information on the nature of the products up for an exchange, the price which each seller wishes to charge and that which the buyers are willing to pay, and the ability to access that information without additional costs. Asymmetry of information, like the famous example of market for used cars, or of medical laboratories standing cheek by jowl with hospitals but about whose quality nothing is clear ruins the market integrity. The market for used cars was the subject of a Nobel Prize-winning theory by George Ackerlof (husband of Janet Yellen, the US Treasury Secretary).

A market that works under the free flow of information is an efficient one. Since a market brings together the buyers and sellers, it follows that the welfare of these participants shall be maximised.

Only after this definition of the market is cleared, can one, therefore, say if a price charged by an entity is anti-competitive—creates inefficiencies. Prices, otherwise, without this background information cannot be a statistic to decide on any market practice. Ergo, a high, low or collusively charged same price by several companies in a cartel is therefore impossible to decide on.

The CCI has not defined any clear concept of markets. It instead picks up one as defined by its investigative arm headed by the Director General, exposing a basic regulatory weakness. In contrast, the Securities and Exchange Board of India (Sebi) for instance defines what it regards as insider trading, the most serious offence in the capital markets. Sebi lists out those. CCI has no such definition of what can be called say “abusive practices” in the market.

In the case of Google, the CCI has “found Google to be dominant in the markets for licensable operating system (OS) for smart mobile devices and market for app stores for Android smart mobile OS, in India”. This is certainly a domain for CCI. The regulator has also concluded that potentially “if the app developers do not comply with Google’s policy of using Google Play's Billing System (GPBS), they are not permitted to list their apps on the Play Store and thus, would lose out the vast pool of potential customers in the form of Android users”.

From there it goes on to say that making access to the Play Store dependent on mandatory usage of GPBS for paid apps and in-app purchases is “one sided and arbitrary and devoid of any legitimate business interest. The app developers are left bereft of the inherent choice to use payment processor of their liking from the open market”.

But in the order, does it explain what is the market inefficiency that was being looked into? Again the problem is here of composition of the market, and a solution to the problem has to be found in the realm of economics.

“To be successful, the economic regulator has to play the role of investment analyst (costs and future revenues), discerning customer, futurologist and observer of relevant societal trends”, writes Alan Sutherland, the chief executive of the Water Industry Commission for Scotland, in a paper. He explains that the role of the regulator in its engagement with the regulated entity “cannot be narrowly focused on appropriate prices and the avoidance of economic rent”.

In other words, the way to decide these questions is by applying economic logic and not that of a court battle. Markets or their violations cannot be decided by laws. The power sector regulator CERC, for instance, has been around since 1998. It will be a brave soul who will say that the electricity markets have become efficient and encourage investments in the process. The CERC has handed down copious judgments over the years. At the same time the Indian data sector, despite all the complaints against it has evolved to be an economic force to reckon with. As of writing, it does not have a regulator.

Surprisingly politicians seem to have understood this more than the bureaucrats. The standing committee on finance, headed by Jayant Sinha in its recommendation of the Digital Act has asked for the identification of Systemically Important Digital Intermediaries (SIDI) and the adoption of definitions to ‘ex-ante’ to regulate their behaviour and framing of regulatory provisions.

Orders passed in 2021–22 imposing monetary penalties

Case	Amount (Rs crore)	Status
Alleged anticompetitive conduct by Maruti Suzuki India Limited in implementing discount control policy vis-à-vis dealers	200	The party has obtained stay from NCLAT
Alleged anticompetitive conduct in the Beer Market in India	863.28	Of three companies, penalty realised from one party. Two have obtained stay from NCLAT
GAIL (India) Limited vs. PMP Infratech Private Ltd. and ors	0.28	One party has obtained stay from NCLAT
amazon.com NV Investment Holdings LLC	200	Steps towards recovery kept in abeyance pending court hearing
XYZ vs. Association of Man Made Fibre Industry of India	3.49	High Court directed not to take any precipitative steps against the petitioner
Anti-competitive conduct in the paper manufacturing industry	0.47	Penalty deposited
Investcorp India Assets Managers Pvt. Ltd.	0.2	Do
Other cases (eight)	0.68	Time of 60 days granted to deposit the penalty not yet over
Source: Annual Report  CCI; FY22