Ahuja v. Snapdeal: Decoding the E-Commerce Anomaly

By Simrandeep Kaur

Amity Law School, Noida

Introduction

E-Commerce is a site where different business firms and individuals sell their products online through a web portal. Online shopping is trending in India. This website provides massive discounts on products during festivals, occasions, and free home delivery services. However, the services’ impact on the traditional markets has raised many concerns against commerce players, such as dominant players, predatory pricing, exclusive agreements, etc. The Ashish Ahuja vs. Snap deal case no. 17 of 2014 [1] is one of the landmark cases where CC discussed the relative market and online platform as a different distribution channel.

Parties

Ashish Ahuja, the informant, was engaged in the sale of data storage devices such as pen drives, hard disks, etc. and he had filed information against Snapdeal.com and Sand Disk Corporation before Competition Commission of India (CCI) under Section 19(1)(a) of the Competition Act, 2002[2].

Snap deal is an e-commerce player which provides an online platform to various sellers to sell their product on a commission basis. 

SanDisk is engaged in the manufacture, distribution, and sale of various data storage devices such as pen drives, solid-state drives, SD cards, etc. 

Ashish Ahuja alleged a violation of Section 3 [3](Anti-competitive agreements) and 4 (Abuse of dominant position) of the Competition Act 2002 by Snap deal and SanDisk [4].

Facts 

The informant had entered into an agreement with Snap deal for the sale of his products on their platform and subsequently started selling his product through an online web portal.

Suddenly the Snap deal stopped the informant’s goods and took off his products from the list. After inquiry informant received a call from the snap deal stating that only authorized dealers mentioned in the list produced by SanDisk can sell their items through its portal. Further, on the demand of the list, it was said that list was confidential. 

After receiving this information, Ashish Ahuja sent various emails to the Snap deal stating that the products being sold in the web portal were open from the open market. He was fully authorized to sell them.

After the informant’s inquiry, the Snap deal asked for NOC (No Objection Certificate) from SanDisk, after which he can sell the product on the portal. Even on the informant’s further assurance that the SanDisk products he was selling were readily available in the market, a snap deal still demanded NOC from the informant. This implied that only after becoming an authorized SanDisk informant dealer can he sell his product through the snap deal’s web portal. The informant also received a letter from SanDisk which says that no after-sale services or warranty support would be provided for SanDisk products purchased from an unauthorized dealer, which according to an informant, is a strategy through which SanDisk creates a monopoly in the market where the authorized dealer can only sell the product or from SanDisk directly and not from an open market.

Issue

 After this scenario, the informant reached the CCI under Section 19(1)(a) of the Competition Act, 2002 against the Snap deal and SanDisk alleging a contravention of Section 3 and 4 of the said Act.

The CCI did not  specify any issue, but the few questions raised in the case were:

  1. What is the relevant market for online shopping, taking its distinct characteristics from offline shopping into consideration?
  2. Whether both the parties (SanDisk and Snap deal) are dominant players in the relevant market?
  3. Whether the practice of allowing the sale of Scandisk products by its authorized dealers on online portals can be considered abusive?

Court Holding

According to the first issue, the CCI determined the product’s relevant market in the case deals with small-sized consumer storage devices like USB pen drives, SD Memory Cards, and Micro SD Cards.  The commission further opined that both the offline and online markets are different, and consumers make decisions according to the options available to them; if a consumer finds a low-price product in the offline market compared to the online market, the consumer shifts towards the offline market or vice versa.

Thus, the CCI highlighted that online shopping is just another method of distributing the same product and not a different relevant market. 

 Regarding the allegation of a dominant player in the market under Section 4 of the Competition Act, 2002, the CCI said that SanDisk was a market leader with the relevant holding of 35% market share (in 2014). Nevertheless, the market was not concentrated due to other market players such as Kingston, Transcend and HP, etc. 

Finally, dealing with allowing the sale only by an authorized dealer on an online portal, the CCI held that it could not be considered ‘abusive’ as it is under the right to protect its distribution channels’ sanctity. CCI also observed a normal business practice to provide services and warranty to only products purchased from an authorized dealer. The market demand greatly depends upon the quality, goodwill, and brand image of the product. Hence, the company needs to ensure the quality and nature of the product.  This allows the company to discourage the sale through the unauthorized dealer. Therefore, the sale of goods from authorized dealers is part of business policy and not the dominant position’s abuse.

Conclusion

The Competition Commission of India had rejected the allegation of violating the provision of Section 3 and 4 of the Competition Act, 2002, and the case was ordered to be closed. 

After analyzing the case, it was concluded that selling goods on a web portal from authorized dealers is a very fact-based determination that can also be seen in an offline market. E-commerce is a platform where people buy and sell goods through intent. Hence it is just another channel of distribution and not as a different relevant market. This decision of the CCI has also been reiterated in another similar case of Mohit Manglani vs. Flipkart India Private Ltd & Ors where the informant Mr. Mohit had filed a case against Flipkart, Jasper InfoTech Private limited, Xerion Retail Private limited, Amazon, and Vector E-Commerce Private limited at the CCI under section 19(1)(a) of the Competition Act. He alleged that these e-commerce companies entered an exclusive agreement and indulged in anti-competitive practices with the seller of goods and services, which had violated Section 3 of the said Act. But the CCI stated that entering into an exclusive agreement with the seller does not lead to any adverse effect on the competition. 

 This statement has a significant impact on regulating competition. It was stated in the relevant market of retail that the percentage of e-commerce is infinitely small and covers around 0.5% of the retail market. [5] as they do not meet the basic condition if one seeks to proceed for anti-competitive practice against them. 

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