Arjun Chakladar & Devanshi Prasad
The European Union Commission (the Commission) has recently resolved to investigate allegations relating to anti-competitive practices undertaken by Amazon.com Inc. The Commission’s investigation and its various allegations will have significant effect on various antitrust practices and domestic jurisprudences across the world.
The inquiry stems from the dual role played by Amazon in its position as one of the largest e-commerce platforms worldwide, and the B2C (business to consumer) e-commerce model employed by it. On one hand, it acts as a platform where multiple sellers have the opportunity to interact and display their products to customers. On the other, Amazon uses this very platform to try and sell products from its in-house brand or promote certain ‘preferred’ retailers that exclusively utilize Amazon’s resources. This creates direct competition with the very sellers to whom it provides a platform to conduct business in the same market. This has resulted in the Commission launching an investigation based on the primary allegation that Amazon is using its position as platform provider to stifle competition and unfairly profit from the same.
The authors in the following blog post, analyse the various allegations levied against Amazon, the arguments refuting them, and the implications of the Commission’s investigation on the Indian competition law regime as well its impact worldwide.
The Commission’s Basis for Investigation
- Self-preferencing Allegations:
The current investigation against Amazon deals with accusations of “self-preferencing”. Self-preferencing refers to the conduct of e-commerce platforms, wherein favourable undertakings are designed in order to favour its own products and services over those of its competitors. Discriminatory conduct, tie-in arrangements and mere refusal to supply goods or services can be construed as the act of self-preferencing. The allegations refer specifically to the preferential treatment of Amazon where it provides advantageous facilities to its own vendors and products. The e-commerce giant was accused and duly investigated of the same by the Competition Commission of India (CCI) earlier in 2020. Preferential treatment was alleged to have been meted out to larger and exclusive sellers of the e-commerce platform. Self-preferencing is a practice that aims to entice parties onto the platform, thereby engaging Amazon’s “logistics and shipping services” to ensure exclusive and preferential treatment.
- Misuse of Big Data and Abuse of Dominance:
The Commission has initiated its investigation in two countries i.e.,France and Germany wherein they assert that Amazon enjoys a dominant position in the concerned market. Dominant position refers to the position of strength enjoyed by Amazon, wherein the enterprise can conduct operations independently and unencumbered by market forces or prevailing competition. However, abuse of the same as alleged refers to the imposition of unfair conditions in the purchase or sale of goods or services, thereby limiting, restricting or denying market access to its competitors. Amazon was accused of the same by the Beverly Hills Polo Club and duly investigated by the CCI for the sale of unauthorised and unlicensed goods, by using its dominant position. The CCI however, dismissed the allegation of dominant position as Amazon merely constituted 35% of the market share not resulting in dominant position or its subsequent abuse. This market dominion, coupled with the following allegations would attract Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). The allegations refer to Amazon: a) promoting its platform to other sellers as a tool to analyze the market interactions; b) manipulating products and sales by presenting “best-selling” goods in order to produce similar products under its own wing; and c) presenting those goods to buyers at lower, more attractive and competitive prices.
The Commission’s initial findings outline that Amazon leverages its dominance in France and Germany, by avoiding retail competition via its marketplace seller data. This misuse of big data accumulated by Amazon is being alleged to have been utilized systematically in its own favour through its chosen traders and products. The Commission aims to penalize such abusive practices with a fine amounting to 10% of the company’s global revenue.
- Disputed Platform Features and Apparatus:
The Commission has also initiated a secondary antitrust investigation into the “Buy Box” and “Prime” features on the Amazon.com platform. The former makes it easier for viewers to buy products of certain retailers immediately by opting for the “Buy Now” option. The latter is a credential afforded to those vendors who make use of the platform’s various facilities. These features have resulted in certain exclusive products and merchants receiving a central location on the website, thereby boosting their engagement with consumers and sales.
Amazon.com Inc. had been earlier investigated by the United States Congress in 2020 for using data of independent sellers to launch and sell products and services under its own private label. These private labels have later on resulted in sales under the “Buy Box” feature giving Amazon the upper hand, yet again, over other merchants on the platform.
Antitrust Violations and Legal Standing
If the Commission arrives at a positive finding regarding Amazon’s dominant standing; the above-mentioned violations would lead to the enforcement of Article 102 of the TFEU. It prohibits the misuse of one’s dominant market status. The alleged abuses relate to sub-section (c) whereby Amazon’s act of using its competitors’ unofficial and privileged data, to further its own sales, has placed the latter at a ‘competitive disadvantage’.
The Commission via its investigation will be required to establish Amazon’s dominance in the relevant product market. Multiple factors may attribute to this conclusion, including but not limited to the fact that Amazon has secured half the market share alone. Constituting half the market share could also reasonably lead to a presumption of dominance keeping in line with previous EU judgments. However, mere dominance is not an antitrust violation in itself; the abuse of it, is what makes it punishable. Dominant Position would constitute an offence under EU Competition Law, only if the dominant enterprise limits or restricts its competition. Article 102 of the TFEU lists abusive behaviour as; unfair trading conditions, limiting of production, applying dissimilar conditions to the competition and the conclusion of non-commercial contracts with restrictive conditions. An enterprise operating independently in a dominant position within the market does not constitute an offence, but exclusionary and exploitative abuses would result in a violation of EU Law.
In continuance of the investigation, the Commission has issued its ‘Statement of Objection’ to the market-giant criticizing and condemning allegations levied regarding the use of the platform’s ‘confidential’ information. The Commission has primarily established that Amazon utilizes this data to stimulate its own sales. This comprises the Commission’s prima facie view which is to be further substantiated by an exhaustive investigation. However, the available data already bears witness to the fact that such practices help Amazon circumvent regular market-place risks which in itself is a paramount competition concern.
Furthermore, the contested features of “Buy Box” and “Prime” prove to be crucial in contributing towards the majority of sales taking place on the platform. On appearances, it seems that those sellers who do not use Amazon’s services, lose from this decision as opposed to their counterparts, who do. It will therefore become pertinent to assess whether these market agents can still compete with their rivals who unlike them, make use of Amazon’s services.
Analysis of Arguments Furthered
The arguments furthered by the executives of the Commission, aim to ensure that platforms such as Amazon do not distort competition with their dual role. Another argument postulates that the conditions prescribed on the platform must be fair. The current framework of rules and features in question offers retail advantages singularly to Amazon and its preferred third-party sellers. In conclusion, the Commission’s policy in lieu of Amazon’s dominant position in e-commerce requires “fair and undistorted access” to be provided to consumers as well as third-party sellers.
Notwithstanding the allegations, the assertions of the Commission have been met with contradictory arguments and contravening evidence. Every company will attempt to further its competitive advantage in their respective market ecosystems. The aim of antitrust law is to ensure a level playing field to all market participants; not to prevent entities from achieving market dominance. A contentious point is when an entity’s operation to further its own advantage goes against the spirit of competition. Thus, the argument that the competitive advantage borne by Amazon in this instance can be equated with ‘anti-competitive’ behaviour in hindsight, holds little merit. Thereby, accusations regarding Amazon’s data being unfairly utilized can be countered effectively.
Not only is the Commission yet to define the relevant product market, which is essential for affirming dominance, but evidence also disputes the Commission’s allegation that Amazon boasts of a dominant position in France or Germany. Its market share in online and offline retail markets largely constitute marginal numbers in the European Union. Since the Commission decided to drop charges levied under Article 101 of the TFEU (pertaining to anti-competitive agreements), claims of ‘abuse’ cannot be substantiated without affirming dominance itself. This recent trend reflects the fact that competition agencies are currently rallying to provide a check into the functions of “digital gatekeepers”. The Commission’s probe merely alleges the contended practices to be anti-competitive on the face of it, without substantial evidence of it.
Mirrored Indian Perspective
The investigations undertaken by the Commission could prove monumental for legislations across the world, and especially in growing technological hubs. Akin to the features across Amazon’s platform in Europe, the tech giant uses terms such as, ‘preferred’ sellers and ‘exclusive’ tags on goods and sellers in the Indian market. Thereby inviting an analogous investigation from India’s competition watchdog, the Competition Commission of India (CCI), and was faced with similar censure earlier in 2020.
The probe was directed to investigate into the alleged anti-competitive practices of Flipkart and Amazon. It was aimed at the allegations of abuse of dominant position and preferential listing of certain sellers, particularly by Amazon. Both the e-commerce giants used terms such as ‘fulfilled’ and ‘assured seller’ in order to favour third-party vendors who used their platform’s facilities. Initially the Karnataka High Court had stayed the CCI’s inquiry due to writ petitions filed by Amazon. However, the matter has remained a contentious issue, with the Court gearing up once again to listen to the CCI’s reasoning for reopening the investigation in January 2021. This matter is extremely pertinent considering that the Indian e-commerce market has grown exponentially, profiting off the pandemic and deepening disparities between offline and online vendors.
Global Ramifications and Potential Remedies
Ramifications of the Commission’s investigation can be witnessed globally. In the U.S.A, the Federal State Commission and States of California and Washington are rallying to begin similar probes into Amazon’s activities. Concurrently, Germany’s Federal Cartel Office and the Italian Competition Authority have also initiated similar actions. These parallel investigations might sway the Indian courts and authorities into investigating domestic antitrust conditions.
Furthermore, the findings of the Commission will have a positive impact on the countries aiming to amend their digital legislations, so as to incorporate market dominance and the identification of relevant digital markets. For reference, Germany’s Competition Law 4.0 Commission has advanced the importance of elucidating the instances in which data could render a company dominant in a relevant market. The remedies available at the behest of Amazon include the prerequisite of reaching an agreement with the Commission in the nascent stages of its investigation. In continuation of the remedies trend, the United Kingdom expert panel commissioned on digital competition issues has recommended the amendment regarding the novel inclusion of interim remedies to combat potentially abusive conduct.
In the circumstance that there is an inability or unwillingness to reach an agreement, it could result in: a) the Commission concluding that there is no anti-competitive conduct pursuant to Art 10 of Regulation 1/2003 or, b) the Commission concluding that there is an infringement of EU competition law, infringing Art 7 of Regulation 1/2003, and order termination of the same. Amazon would be required to stop the practices in question, particularly the company’s behaviour under investigation in the latter conclusion. This would necessitate a dialogue with the Commission to propose appropriate measures, as the Commission does not prescribe specific conduct, only a mere framework.
The Commission’s investigation comes from the place of ensuring that no similar entity is able to tip competition in its favour making use of its dominant position. However, the fact remains that an enterprise is entitled to promote its own business and further its growth and stronghold in any relevant market. With the increase of reliance placed by enterprises driven on big data in current ecosystems, the lines begin to blur between these two sentiments. A clear limitation on the application of such data by tech giants to further its own features is yet to be demarcated.
It remains to be seen in which direction the investigation will develop and judging by precedents, the probability of an agreement on commitments seems imminent.
The authors are Fourth Year students pursuing their degree in law from the National Law Institute University, Bhopal.