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CCI’s Ruling in OYO case: Defining Relevant Market Proving to be a Sticky Pitch for the Commission

Sumit Jain

The Competition Commission of India in its order dated July 31, 2019 held that Oravel Stays Pvt. Ltd., i.e. OYO rooms, is not acting in violation of the Competition Act 2002. It also said that even though the dominant position of the said corporation in the defined ‘Relevant Market (RM)’ is in itself dubious, thereby suggesting closure of Section 4 cases at the very second stage, terms of the agreement signed between the parties, too are fair and justified in the business circumstances it is signed.

Facts of the case were one RKG Hospitalities Pvt. Ltd (“Informant”) alleged that OYO is in dominant position in the RM of ‘service providing budget hotels to customers through online booking’, and it imposes unfair and one sided terms on its partners through the said position. The Informant placed reliance on OYO’s own submission in a ‘Report Card’, where the company declared itself as the largest hospitality company in India, and quoted few other reports and statements to buttress OYO’s dominant position.

While the overall picture painted by the Commission in its analysis looks promising, there are few glaring gaps in the reasoning adopted by the Commission. Settled canons for interpretation of Section 4 would suggest there are three stages a case has to go through for a proved contravention - defining the RM, establishing of dominant position in the defined RM, and finally abuse of that position. However, the said order bypasses that established principle by first defining the RM, and then tracking back on it [Para 48]. This is something unprecedented as far as interpretation of the said section is concerned, and there is a high chance of this inconsistency in itself being proved to be a sufficient cause for the appellate tribunal challenge. Apart from this, the Commission also did quite a preliminary analysis for establishing dominant position of the said entity in the defined RM. As correctly relied upon by the CCI, Section 19(4) of the Act lists more than ten factors to assess dominance of the relevant player in the given RM, however instead of doing a clause by clause analysis, it directly jumped on to appreciate “…the market conditions in totality…”.

Another ancillary issue with the said ruling is the Commission going soft on OYO rooms under the pretext of franchising as a business model quite in ‘nascent phase’ in the hotel industry. This is similar to the approach adopted by the CCI in Ola and Uber case where it held that “…market dynamics is yet to fully effectuate…”, thereby hinting a leeway for the parties involved as far as compliance sought in the Act is concerned. Even though the context of the two orders is quite different, it is worth noting that the Commission is vigilant in the sense it is observing development of the markets, but at the same time adopting a gullible approach to deal with the relevant players. This might not sit well with the Preamble of the Act given that the body is entrusted to have a holistic view of the Indian economy. OYO recently raised $1bn through VC funding thereby making it a prominent player in the service sector, and is not only expanding in India, but across the world through various marketing strategies.

A near parallel would also suggest that the concern with rise of the big-tech is also associated with too much far-sightedness of competition regulators across the globe, just like in the Indian context. Tim Wu, Senior Advisor to the Federal Trade Commission (FTC), while advocating breakup of the social giant Facebook, recently admitted in an interview that the regulator was having overly rosy view about the rise of big tech, thereby failing to ensure distributed growth in the American economy. Facebook was fined $5bn by the FTC.

While the fate of the said case is yet unknown and depends on the Informant challenging it in the Appellate Tribunal, the order does give clarity on Commission’s shift to the quantitative approach, over the qualitative. The Commission in yet another reiteration suggested that “…qualitative claims…cannot be relied upon for concluding dominance…” thereby showing an inclination towards data-driven evidence and numbers. With the rise of ‘big data’ and automated analytical tools, one may suggest the shift towards the quantitative approach is happening for the better. The said numbers and data-driven policy would not only lead to a more coherent legal regime, but provide better predictability and clarity to the involved stakeholders.

Note: This is a republished version of the piece published on Legal Services India.