The Essential Facilities Doctrine can be explained a “facility or infrastructure without access to which competitors cannot provide services to their customers”. Under the doctrine, a dominant undertaking that owns or controls such a facility and refuses, without an objective justification, to make it available to competitors-or makes it available in discriminatory terms-abuses its position of dominance. Under the Competition Act, 2002 (hereinafter ‘the Act, 2002’ or ‘Competition Act’), the essential facilities doctrine has been applied in cases relating to the denial of market access by a dominant enterprise.[i] It is relevant to understand the concept of the doctrine through its evolution in key jurisdictions around the globe.
The essential facilities doctrine was first applied in EC competition law in the Sealink However, it originates in American antitrust law. In 1912, the doctrine found its origin in the U.S. Supreme Court case of United States vs. Terminal Railroad Association[iii], even though the Sherman Act makes no direct reference to it. It was held that the “pure” essential facilities doctrine applies to access to physical infrastructure such as ports, airports and pipelines. Such facilities are “essential” because, by nature, they cannot be replicated in an economically viable manner and therefore, are the subject of a natural structure to enter into a market or to initiate an activity, as no other alternative exists or is granted.[iv]
As defined above, in cases where an input, facility or infrastructure owned by an enterprise in a dominant position is essential to ensure effective competition on the downstream market and when it is not legally, technically or economically possible to find an alternative for this input, facility or infrastructure, an obligation to supply this input, facility or infrastructure to competitors in the downstream market is imposed such undertakings through the “essential facilities doctrine”.[v]
The most important case concerning ‘essential facilities’ is the Oscar Bronner case[vi]. In this case, Oscar Bronner published a newspaper with a market share of less than 4% of the Austrian newspaper market, while Mediaprint published two newspapers with a combined market share of almost 50%. Mediaprint had established a nationwide system for the distribution of newspapers early in the morning, with deliveries to the subscribers’ homes. This system, the only one of its kind, provided distribution services also to a newspaper published by a third publisher. Oscar Bronner argued that the distribution system should be regarded as an essential facility, as it lacked the ability to establish a competing system, and that Mediaprint’s refusal to distribute Bronner’s newspaper should be regarded as an abuse of a dominant position.
The ECJ when asked for a preliminary ruling in [para41] stated four factors which should exist for a refusal to be an abuse. First, the refusal would have to be likely to eliminate all competition in the downstream market from the person requesting access [para38]. Second, the refusal must be incapable of objective justification [para41]. Third, the access to the facility must be indispensable to carrying on the other person’s business and finally, there must be no actual or potential substitute for it. In this case the criteria were not fulfilled. The Court emphasized especially on the fact that access must be indispensable and not desirable or convenient. In [para45-46] the Court said that it would only be indispensable if it was not economically viable to create a substitute for the facility. In his opinion A-G Jacobs said in [para57-58] that there would be a “reduction of the incentive to invest to essential facilities” if they were required to share them with all competitors and that the interest of Article [82] is to protect the interests of consumers rather that the interest of competitors.
In the Court’s view, use of Mediaprint’s home delivery service was not indispensable since there were other means of distributing daily newspaper e.g. through shops or post [para44] and so the behaviour of Mediaprint did not amount to an abuse. However, the Court also mentioned that sometimes duplication can be physically impossible such as in the case of a port or an airport or a second rail network.
E. Erdem researched on the criteria that would determine what would constitute an essential facility, bringing four points to light.[vii] The first point dealt with the objective necessity of the essential facility. It is not a necessary implication that without the refused input no competitor could ever enter or survive on the downstream market. Rather, an input is indispensable where there is no actual or potential substitute on which competitor in the downstream market could rely to counter, in the long term, the negative consequences of the refusal to allow access to the input.
The second point deals with elimination of effective competition in downstream market. Once the objective necessity of the input in the downstream market is established, it should be considered whether a dominant undertaking’s refusal to supply such input is liable to eliminate, immediately or over time, effective competition in the downstream market. The likelihood of effective competition being eliminated is generally greater if the market share of the dominant undertaking in the downstream market is higher.[viii] The third point which was widely discussed was consumer harm. In evaluating the likely impact of a refusal to supply on consumer welfare, it should be examined whether, for consumers, the likely negative consequences of the refusal to supply in the relevant market outweigh, over time, the negative consequences of imposing an obligation to supply.[ix].[x]
The decisive point is one on the ground of efficiency. Even if the three conditions are fulfilled, any claims put forward by the dominant undertaking contending that its conduct was justified must be considered and if it is found that such claims constitute efficiency grounds, the dominant undertaking will not be fined.
Essential Facilities Doctrine under the Indian Competition Law regime
With the advent of industrialisation, The question that arises is whether these companies can now be compelled to share their facilities, built at a huge cost on a fair and non-discriminatory basis, to new entrants in the name of promoting competition.. Section 4 of the Competition Act provides that limiting markets, practices resulting in denial of market access, and leverage to protect another market are specific instances of abuse of dominant position. It can be seen as transfer of profit of one organisation to another. The doctrine should be applied in a situation when the conduct is likely to eliminate all effective competition in the market.
This doctrine was examined by the CCI in the case of Arshiya Rail Infrastructure Limited (ARIL).[xi] The CCI held that Container Corporation of India (CONCOR) was not dominant in the relevant market but as an obiter on the issue of access of terminals of CONCOR held that essential facilities doctrine can be only be invoked in certain circumstances © technical feasibility ton provide access; (b) possibility of replicating the facility in a reasonable period of time, distinct possibility of lack of effective competition if such access is denied and possibility of providing access on reasonable terms. Although the parameters are much wider that the parameter that have been provided in Europe, in the case at hand in CONCOR it was held that since there were no technical, legal or economic reasons why the other Container Train Operators should not invest. It will be interesting to see of the same parameters would be adopted for future cases or it would only be seen as an obiter.
In the landmark judgement of Shamsher Kataria v. Honda Siel Cars India Ltd.[xii], the DG concluded that spare parts, diagnostic tools, manuals, etc., of each OEM would constitute essential facilities for the independent repairers to be able to provide consumers with effective after-sale repair and maintenance work. This would be essential for independent repairers to be able to effectively compete with the authorized dealers of the OEMs. The Commission pointed out that the essential factors to be taken into account in determining whether spare parts of each OEM would constitute essential facilities for independent repairers are: (a) control of the essential facility by the monopolist; (b) the inability to duplicate the facility; (c) the denial of the use of the facility; and (d) the feasibility of providing the facility.
Therefore, access to such technology was critical for any entity undertaking after-sale services to be able to compete effectively on the market.
Laws in India Mandating Sharing of Facilities
Even though the essential facilities doctrine has not yet been explicitly invoked in India in the context of competition law, the doctrine is, by no means, a tabula rasa in Indian jurisprudence, with many sector-specific laws explicitly recognizing it. As far as the telecom sector in India is concerned, it is essential to provide other competitors with access to essential facilities in order to promote facility-based competition, since the sector has traditionally been dominated by only a few undertakings. Section 11 of the TRAI Act[xiii] ensures interconnection and technical compatibility between the services that are provided by various players in the telecom sector. Similarly, In the pre-liberalization era, GAIL owned 70% of the market share.[xiv]to provide new entrants with access to essential facilities Section 2 of Petroleum and Natural Gas Regulation Board Act, 2006 was enacted to clearly spell out provisions to mandate the sharing of essential resources. the Electricity Act, 2003 includes within its ambit the essential facilities doctrine for effectuating its goals. Specifically, Section 2 (47) of the Act empowers the appropriate commission to issue regulations for the non-discriminatory use of transmission lines or distribution systems by licensees, consumers and all other entities involved in electricity generation.
Conclusion
It is my understanding that the essential facilities doctrine should be applied on a large scale to place fetters on activities that have negative effects on competition in the market and to lend greater strength to our competition law regime. If properly implemented, this doctrine can stand as a strong pillar, capable of supporting and strengthening the structure of Indian competition law.
This blog has been authored by Apoorva Vijh, a student of Symbiosis Law School, Noida.
[i] The Competition Act, 2002, No. 12, Acts of Parliament, 2003 (India), §4.
[ii] B & I Line plc vs. Sealink Harbours Ltd., Commissiom Decision [1992] 5 C.M.L.R. 255 ¶41.
[iii] Terminal Railroad Co. v. U.S., 224 U.S. 383 (1912).
[iv] Robert Pitofsky, Donna Patterson & Jonathan Hooks, The Essential Facilities Doctrine under United States Antitrust Law, 70 Antitrust L.J. 443 (2002).
[v] Phillip Areeda, Essential Facilities: An Epithet in Need of Limiting Principles, 58(3) Antitrust L.J. 841 (1989).
[vi] Oscar Bronner GmbH & Co. KG v. Mediaprint Zeitungs-Case C-7/97, 1998 E.C.R. I-7791, [1999] 4 C.M.L.R.
[vii] H. Ercument Erdem, Abuse of Dominant position through Refusal to Supply, Erdem & Erdem (Dec. 2013), http://www.erdem-erdem.av.tr/publications/law-post/abuse-of-dominant-position-through-refusal-to-supply/.
[ix] See supra note 5.
[x] Gregory J. Werden, The Law and Economics of the Essential Facility Doctrine, 32 St. Louis U. L.J. 433 (1987).
[xi] Arshiya Rail Infrastructure Limited (ARIL) v. Ministry of Railways, (2013) 122 CLA 297 (Competition Commission of India).
[xii] Shamsher Kataria v. Honda Siel Cars India Ltd., (2014) Comp. L.R. 1 (Competition Commission of India).
[xiii] The Telecom Regulatory Authority of India Act, No. 24, Acts of Parliament, 1997 (India), §11(b)(iii).
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