Supreme Court Upholds Probe into Uber’s Predatory Pricing: Competition Law Case (3 September 2019)

Introduction

Date of the Judgment: 3 September 2019

Citation: Civil Appeal No. 641 of 2017

Judges: R. F. Nariman, J. and Surya Kant, J.

Can a company be accused of anti-competitive practices for offering services at a loss? The Supreme Court of India recently addressed this question in the case of Uber India Systems Pvt. Ltd. vs. Competition Commission of India & Ors. The court examined whether Uber abused its dominant position by offering rides at prices below cost, potentially eliminating competition. This judgment clarifies the scope of “predatory pricing” under the Competition Act, 2002. The bench comprised Justices R. F. Nariman and Surya Kant, with the judgment authored by Justice R. F. Nariman.

Case Background

The Competition Commission of India (CCI) initiated an investigation against Uber India Systems Pvt. Ltd. based on allegations of predatory pricing. The CCI found that Uber was offering substantial discounts and incentives to drivers, resulting in losses per trip. The CCI believed that these practices were aimed at eliminating competition in the market. The appellant, Uber, challenged this decision, arguing that its pricing strategy was not anti-competitive.

Timeline

Legal Framework

The Supreme Court examined Section 4 of the Competition Act, 2002, which deals with the abuse of dominant position. The provision states:

“4. Abuse of dominant position.-(1) No enterprise or group shall abuse its dominant position. (2) There shall be an abuse of dominant position under sub-section (1), if an enterprise or a group,—- (a) directly or indirectly, imposes unfair or discriminatory—(i) condition in purchase or sale of goods or service; or (ii) price in purchase or sale (including predatory price) of goods or service.”

The explanation to Section 4 of the Competition Act, 2002 defines “dominant position” as a position of strength that enables an enterprise to operate independently of competitive forces or affect its competitors or the relevant market in its favor. Further, “predatory price” is defined as the sale of services at a price below cost with the intention to reduce or eliminate competition.

Arguments

The court considered the following arguments:

• The Competition Commission of India (CCI) argued that Uber’s practice of providing heavy incentives to drivers, resulting in losses per trip, constituted predatory pricing. The CCI contended that this was a deliberate strategy to eliminate competition, violating Section 4 of the Competition Act, 2002.
• Uber argued that its pricing strategy was not anti-competitive and that the incentives were aimed at attracting drivers and customers. The company contended that it was not abusing any dominant position.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section but addressed the following:

• Whether Uber held a dominant position in the relevant market.
• Whether Uber abused its dominant position by engaging in predatory pricing.

Treatment of the Issue by the Court

Authorities

The Court primarily relied on Section 4 of the Competition Act, 2002 and its explanations.

Judgment

The court observed the following:

• The court noted that Uber was losing Rs. 204 per trip, which did not make economic sense other than pointing to Uber’s intent to eliminate competition.
• The court stated that if a loss is made for trips, Explanation (a)(ii) of Section 4 of the Competition Act, 2002 would be prima facie attracted as this would certainly affect the appellant’s competitors in the appellant’s favour or the relevant market in its favour.
• The court stated that under Section 4(2)(a) of the Competition Act, 2002, if a dominant position is used to impose an unfair price, including predatory pricing, it would attract abuse of dominant position.

The court quoted the following from the information that was provided:

“Uber’s discount and incentive offered to consumer pale in comparison with the fidelity inducing discounts offered to drivers to keep them attached on its network to the exclusion of other market players. Uber pays drivers/car owners attached on its network unreasonably high incentives over and above and in addition to the trip fare received from the passengers…In light of the abovementioned statement, it can be seen that Uber was losing Rs.204 per trip in respect of the every trip made by the cars of the fleet owners, which does not make any economic sense other than pointing to Uber’s intent to eliminate competition in the market.”

What weighed in the mind of the Court?

The court was primarily influenced by the factual evidence that Uber was incurring losses per trip due to high incentives, which indicated a strategy aimed at eliminating competition. This, combined with the legal framework of Section 4 of the Competition Act, 2002, led the court to conclude that there was a prima facie case of abuse of dominant position.

Key Takeaways

• Companies with a dominant market position cannot engage in predatory pricing practices aimed at eliminating competition.
• Offering services below cost with the intent to reduce or eliminate competition is a violation of Section 4 of the Competition Act, 2002.
• The Competition Commission of India (CCI) has the authority to investigate and take action against companies engaging in anti-competitive practices.

Directions

The Director General was requested to complete the investigation within six months from the date of the judgment.

Development of Law

This case clarifies that offering services below cost, resulting in losses, can be considered predatory pricing and an abuse of dominant position under Section 4 of the Competition Act, 2002. This ruling reinforces the importance of fair competition and prevents dominant players from using aggressive pricing strategies to eliminate competition.

Conclusion

The Supreme Court dismissed Uber’s appeal, upholding the Competition Commission of India’s decision to investigate Uber’s pricing practices. The court found a prima facie case of predatory pricing, emphasizing the importance of fair competition and preventing dominant players from abusing their position to eliminate competitors.