The Competition Commission of India on January 13, 2020, has issued directions under Section 26(1) of the Competition Act, 2002 to the Director General to cause an investigation against alleged anti-competitive practices by Flipkart Internet Private Limited and Amazon Seller Services Private Limited. 

Brief Facts:

An information under Section 19(1) (a) of the Competition Act, 2002 (“Act”) was filed by Delhi Vyapar Mahasangh (“Informant”) alleging contravention of provisions of Section 3(4) read with Section 3(1) and Section 4(2) read with Section 4(1) of the Act by Flipkart Internet Services Pvt. Ltd. (“Flipkart”) and Amazon Seller Services Pvt. Ltd. (“Amazon”).  

The Informant, which is an association of traders of smartphones and related accessories, alleged that there are vertical agreements between Flipkart with its preferred sellers and Amazon with its preferred sellers which has led to foreclosure of other sellers from these online market places. It has been further alleged that most of these  sellers are controlled by Amazon or Flipkart, either directly or indirectly. 

Issues:

The Informant has made the following allegations against Flipkart and Amazon-

Deep Discounting: The Informant alleged Flipkart incurs part of cost during Big Billion Days sales or other sales for its preferred sellers which adversely impacts the non preferred sellers from competing with such sellers on Flipkart’s online platform.

The Informant alleged that Amazon has preferred sellers on its platform namely Cloudtail India (a joint venture between Amazon and Catamaran Ventures) and Appario Retail (a wholly owned subsidiary of a joint venture between Amazon and Mr. Ashok Patni which received a round of investment from Frontizo Business Services Ltd.) which are related to Amazon. Similar allegations of deep discounts by Amazon to the detriment of non-preferred sellers have been levelled by the Informant.

Preferential Listing: Flipkart lends the word “Assured Seller” to the products sold by its preferred sellers such as Vision Star, Flashstar Commerce and Flashtech Retail (since July 2017), which creates a bias in favour of preferred sellers to the detriment of other sellers. Besides receiving deep discounts, such assured sellers also receive preferential listing on the website of Flipkart, pushing the results of the non-preferred sellers further down in the search.

Amazon lends the word “Fulfilled” to the products sold by preferred sellers and creates search bias by listing its preferred sellers in the first few pages of the search results. The products sold by Cloudtail India and Appario Retail allegedly dominate first few pages of search results whereas the products with the same ratings sold by non-preferred sellers are listed on later pages.

Exclusive Tie-ups and Private Labels: Both Flipkart and Amazon have several tie-ups and private labels which get more preference in terms of sales. The OPs’ private label brands, sold through their platforms, are routed through a few preferential sellers. It is alleged that by having exclusive tie-ups in the relevant market with the smartphone companies, it provides exclusivity through discounting and preferential listings.

Analysis by CCI:

The CCI noted that IT industry body the National Association of Software and Services Companies (Nasscom) estimated that the Indian ecommerce market was $33 billion in 2017-18 that reached $38.5 billion during 2018-19. Flipkart and Amazon comprise bulk of the online retail market in India. Though these platforms are used for selling various categories of products, for some categories the online channel constitutes a predominant channel of distribution. Smartphones is one such category of product.

Mobile manufacturing companies like One Plus, OPPO, and Samsung have exclusively launched several of their models on Amazon. Similarly, Vivo, Realme, Xiomi etc., have exclusively launched several of their models on Flipkart. In 2018, Flipkart launched 67 mobile phones and Amazon launched 45 mobile phones exclusively on its platform. Thus, it appears that these mobile manufacturers partner with the e-commerce platforms and their brands are sold by the platforms’ exclusive sellers.

The CCI observed that there are only few online sellers, which are selling these exclusively launched smartphones either through Amazon or through Flipkart. Based on the evidence adduced by the Informant and information available in the public domain, the Commission prima facie inferred that there appears to be exclusive partnership between smartphone manufacturers and e-commerce platforms for exclusive launch of smartphone brands. Thus, exclusive launch coupled with preferential treatment to a few sellers and the discounting practices create an ecosystem that may lead to an appreciable adverse effect on competition.

The Hon’ble Commission observed “that the exclusive arrangements between smartphone/mobile phone brands and e-commerce platform/select sellers selling exclusively on either of the platforms, as demonstrated in the information, coupled with the allegation of linkages between these preferred sellers and OPs alleged by the Informant merits an investigation. It needs to be investigated whether the alleged exclusive arrangements, deep-discounting and preferential listing by the OPs are being used as an exclusionary tactic to foreclose competition and are resulting in an appreciable adverse effect on competition contravening the provisions of Section 3 (1) read with Section 3(4) of the Act.” 

Decision:

The Commission was of the opinion that there exists a prima facie case which requires an investigation by the Director General (‘DG’), to determine whether the conduct of Amazon and Flipkart have resulted in contravention of the provisions of Section 3(1) of the Act read with Section 3(4).

This update has been contributed by R. Sudhinder (Senior Partner) and Prerana Amitabh (Managing Associate).