GOOGLE PENALIZED HEAVILY BY THE COMPETITION COMMISSION OF INDIA FOR ABUSE OF ITS DOMINANT POSITION

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The Competition Commission of India (CCI) has issued an order dated 31.01.2018 against Google LLC and Google India Private Limited for abuse of its dominant position under Section 4 of the Competition Act 2002 (‘the Act’). In the year 2012, two companies, namely, Consim Info Private Limited (now, Matrimony.com Limited) and Consumer Unity & Trust Society (CUTS), (‘the Informants’) had filed two cases No. 07 and 30 of 2012 against Google Inc. (now, Google LLC) and Google India Private Limited, (‘Google’) alleging contravention of Section 4 of the Act.

The Informants had alleged that while conducting the core business of search and advertising, Google has been manipulating the search results and favoring its own services and partners, such as Google Video, YouTube, Google Maps, Google News, etc. Thus, pages in the search results do not appear according to their relevance, popularity, etc. For instance, when we search for a song in the Google Website, we primarily receive links to the videos of that song from Google Video or YouTube, etc. It was further averred that Google is widely recognized as enjoying a dominant status in the search advertisement market because of its market share, size, resources, reputation etc. Therefore, such practices of search bias, search manipulation, denial of access to competing search engines, creation of entry barriers etc amount to abuse of dominant position.

The CCI had directed the Director General (‘the DG’) appointed under the Act to investigate into the matter in 2012. Considering the Investigation Report submitted by the DG in 2015, the CCI made the following analysis:

  1. That online search falls within the ambit of Section 4 of the Act:

Online search engines like Google are a platform connecting advertiser/businesses, etc on one side and users/consumers on the other side. When a search request is made by a user, the platform seeks certain information from the users such as their IP address, device information, location, etc. Such huge volumes of data are used by the search platforms to attract advertisers, target relevant ads and conduct their search business. The platform also earns revenue when a user clicks on any ad displayed by the advertiser through the platform.

  1. Dominant position:

According to the explanation (a) to Section 4 of the Act, “dominant position” means a position of strength, enjoyed by an enterprise, in the relevant market, in India, which enables it to— (i) operate independently of competitive forces prevailing in the relevant market; or (ii) affect its competitors or consumers or the relevant market in its favor.

Based on the DG Report, the CCI confirmed that Google is a dominant enterprise in both the relevant markets of Online General Web Search Services and Online Search Advertising in India (‘Markets’) based on factors like its size and resources, economic power and commercial advantages, entry barriers, etc.

It further noted that the market share of Google and its competitors show that none of the competitors of Google has so far been able to match Google’s market strength in either Market. The market share, consumers’ and advertisers’ dependence on Google, continuous innovation, etc indicate that the users and businesses are unlikely to switch to a competing search engine. Also, Google’s insurmountable scale advantage and high barriers of entry (as only online general web search market can compete in the search advertising market), etc effectively restrict entry into the search advertising market. Thus, all such market conditions clearly indicate Google’s dominance in the Markets.

  1. Abuse of Dominant Position:

i) The CCI held that Google was wrong and unfair in displaying the search results prior to 2010 in pre-determined/fixed positions instead of ranking them in order of relevance.

ii) The CCI further held that when a user clicks on ‘more results’, the link leads to Google’s specialized services and not any other vertical search service. For instance, the most relevant search result for maps was Google Maps, for flights it was Google Flights, and such others.

Moreover, by doing so Google could collect large volumes of user data but the other competing vertical search pages, which may be equally efficient, could not reap the same benefit, thereby deteriorating their ability to further innovate on their products and sustain and survive in the market.

Further, such practices of search bias cause harm to its competitors, as it adversely affects the competitive landscape in the Markets, as well as to its users, as they may not receive the most relevant results.

iii) Google also prevented partners with whom it entered into search agreements from implementing on their websites any search services which are the same or substantially similar to Google’s search service. This online search exclusivity condition was held to be unfair as it restricts the choice of the partners and denies its competitors access to the search business. Google also had agreements with publishers of ads which restricted the publishers from posting ads in any other search engine which were same as or substantially similar to the ads posted in Google. The other restrictive conditions imposed on such publishers and partners included prohibition from using competing services, or restrictions relating to the manner of placement of ads of competitors, etc.

The aforesaid restrictive conditions imposed by Google on such publishers and partners prevented the competing service providers from achieving necessary scale resulting in creation of entry barriers for them.

Thus the CCI held that the aforesaid conduct of extending and preserving Google’s dominance in the Markets has been held to be violative of Section 4 of the Act. The CCI has, therefore, imposed a penalty of Rs. 135.86 Crores on Google, which is to be deposited within 60 days of the receipt of this Order.

 

Harini Daliparthy

Senior Legal Associate

UNION BUDGET 2018-19: FOCUS OF THE GOVERNMENT ON DEVELOPMENT OF INFRASTRUCTURE SECTOR IN INDIA

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The Finance Minister of India, Mr. Arun Jaitley, has laid down the Union Budget 2018-19 on 01.02.2018 in the Parliament of India. The Budget has made an allocation of Rs. 5.97 lakh crore for infrastructure sector including roads, railways, airports, ports and inland waterways (Sector). The Government of India considers this Sector as the growth driver of the economy. Thus, the Budget allocation for this Sector has been increased in 2018-19 (Rs. 5.97 lakh crore) against an estimated expenditure of Rs 4.94 lakh crore in 2017-18.

The Budget has focused on development of the following infrastructure projects:

  • Development of existing infrastructure: The Budgetary allocation is more focused on developing the existing infrastructure projects, both urban and rural, thereby, providing maximum livelihood and long term employment opportunities through education and skill development and has, therefore, refrained from making any new project announcements.
  • Development of rural infrastructure: This includes development of rural roads, rural houses, household electric connections, animal husbandry sector, irrigation, rural electrification, potable drinking water and access to toilets etc.
  • Creation of infrastructure for seaplanes: For the purpose of boosting regional connectivity, the Government has planned to introduce seaplanes and a passenger-friendly toll policy. It has also planned to encourage investments in seaplane services for tourism and emergency medicare purposes.
  • Facilitating air travel: Under the Government’s Regional Connectivity Scheme that has already connected 16 new airports and aims to connect 56 unserved airports and 31 helipads, the Government proposes that at least half the seats on every flight should have a fare cap of Rs. 2,500 per seat per hour of flying.
  • Railway infrastructure: The Government has pegged at Rs. 1,48,528 crore for 2018-19 to enhance railways’ carrying capacity and to strengthen the railway network. It has aimed to redevelop 600 major railway stations, provide WiFi and CCTV at railway stations, etc.
  • Connectivity in border areas: The Government has aimed to enhance the connectivity in border areas by construction of tunnel under the Sela Pass in Arunachal Pradesh.
  • Development of industrial corridors: This includes development of roads and services, administrative and business centre, water treatment plant, common effluent treatment plant and sewage treatment plant in Dholera Special Investment Region (Gujarat), Shendra Bidkin Industrial Area (Maharashtra), Dighi Port Industrial Area (Maharashtra), Multi Modal Logistics Hub, Nangal Chaudhury (Haryana), Vikram Udyogpuri (in Ujjain). The Government expects to allot plots measuring 350 hectares to industrial units by March 2019, as this may open avenues for development of greenfield industrial area.
  • Execution of Bharatmala Pariyojana and Sagarmala Projects: The Government had approved this roads and highways Project during 2017-18 for providing seamless connectivity to interior and backward areas of India and to develop about 35,000 km in Phase-I at an estimated cost of Rs. 5,35,000 crore. While the total investment for Bharatmala is estimated at Rs. 10 trillion, but an additional Rs. 8 trillion of investments will be needed for executing the Sagarmala Project, focused on development of ports, coastal economic zones, etc, until 2035.
  • Tourism: The Government has proposed to develop ten prominent tourist sites into iconic tourism destinations
  • Enhancement of digital connectivity: The Budget has allocated Rs 10,000-crore for creation and augmentation of telecom infrastructure and to roll out 5 lakh WiFi hotspots to boost broadband connectivity. It has further stated that under the BharatNet initiative, around 2.5 lakh villages already have optical fibre connectivity and that the Government aims to expand it to remaining 1.5 lakh villages.

The Government has proposed to raise and arrange for finances for execution and completion of the infrastructure projects in the following manner:

  1. Creation of Special Purpose Vehicles and use of innovative monetising structures like Toll, Operate and Transfer (TOT), Infrastructure Investment Trust (InvIT), etc by National Highways Authority of India (NHAI). The Government has also permitted NHAI and Metro to raise bonds from the market.
  2. Development of monetizing vehicles like, InvIT and Real Estate Investment Trust by the Government and market regulators.
  • Proposal to make necessary amendments to the Indian Stamp Act 1899 with regard to stamp duty leviable on financial securities transactions.
  1. Access of equity and bond markets by state-owned firms to raise resources.
  2. Levy of road and infrastructure cess of Rs. 8 per litre on imported petrol and diesel by the Budget.
  3. Government to purchase surplus solar power, generated by solar water pumps installed by farmers to irrigate their fields. Allocation of Rs 4,200 crore for capacity addition in wind, solar and green energy corridor projects.
  • Finance from India Infrastructure Finance Company Ltd, a wholly-owned Government of India Company, to help finance major infrastructure projects including investments in educational and health infrastructure.
  • Market regulators to consider investments in A-rated bonds.
  1. Securities and Exchange Board of India to consider mandating, beginning with large corporates, to meet about one-fourth of their financing needs from the bond market.
  2. Listing of 14 Central Public Sector Enterprises (CPSEs), including two insurance companies, on the stock exchanges; Initiation of strategic disinvestment process in 24 CPSEs; Strategic privatization of Air India; Merger of 3 public sector general insurance companies namely, National Insurance Company Ltd., United India Assurance Company Limited and Oriental India Insurance Company Limited into a single insurance entity and then the subsequent listing of such entity on the stock exchanges.

There have been mixed responses from various industry experts. A few experts have stated that they do not see any significant job creation from the Budget proposals. Whereas others have stated the focus of the Government on execution and completion of the existing infrastructure projects and increase in Budget allocation towards the same may have a positive outcome on the economy, and that the investments in such projects may lead to employment generation.

Thus, the aforesaid Budget proposal and allocation to the infrastructure sector reflects the Government’s firm commitment to boost investment for growth and development of the Sector.

 

Harini Daliparthy

Senior Legal Associate

UNION BUDGET 2018-2019: MEASURES TO BE TAKEN UP BY INDIAN GOVERNMENT TO IMPROVE INVESTORS ECOSYSTEM

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Finance Minister Mr. Arun Jaitley on 1st February 2018 while presenting the Union Budget 2018-2019 said that the Government is steadfast to take additional measures to further strengthen and support angel and venture capital (VC) investors operations in India.

Mr. Jaitley also said that the VC funds and angel investors need an innovative and special development and a regulatory regime for growth. Adding to which he further said, “We have taken a number of policy decisions, including launching of Startup India programme, building a very robust alternative investment regime in the country and rolling out a taxation regime designed for the special nature of VC funds and angel investors,”.

However, the Investors have been expecting a relaxation in the angel tax levied on angel investors who put in their money across early stage start-ups which is considered a high investment risk. Presently, funds from angels are taxed at over 30% if it is more than the fair market value (FMV).

Angel Tax Clause was introduced in Budget 2012, this clause in Section 56 of the Income Tax Act explicitly states that all startups are liable to pay taxes on money invested as capital, including on angel funds.

He further said that the Government’s main focus is to have better regulation to govern angel and VC investors by fixing regulatory issues to reinforce the environment for angel investors growth and successful operation of the alternative investment fund in India.

The Finance Minister emphasized the importance of using Financial Technology (FinTech or fintech). FinTech is the application of technology by the financial industry to improve financial activities. FinTech will help the growth of micro, small and medium enterprises (MSMEs). He further said, “A group in ministry of finance is examining the policy and the institutional development measures needed for creating the right environment in the fintech companies to grow in India,”.

Financial technology companies consist of both start-ups and established financial and technology companies trying to replace or enhance the usage of financial services provided by existing financial companies. The use of smartphones for mobile, banking and investing services are examples of technologies aiming to make financial services more accessible to the general public.

Hence, the Government’s measures to help the expansion of financial technology start-ups will make it easier for MSMEs to access capital.

Taruna Verma

Senior Associate