This article has been written by Kangan Pasricha and Shweta Raju, 5th year law students of University of Mumbai, School of Law, Thane Sub-campus.
“Just as modern mass production requires the standardisation of commodities, so the social process requires standardisation of man, and this standardisation is called equality.”
Erich Fromm
Standard setting is a procedure involving intended compliance which provides for common and repeated use of rules, guidelines or characteristics for products or related process and production methods. It includes or deals exclusively with terminology, symbols, packaging, marking or labelling requirements as applied to a product, process or production method which often promulgates competition for the welfare of consumers. Standards have a constructive effect on the economy as long as they encourage the expansion of new markets and improve supply conditions. Standards tend to upsurge competition and allow lower output and sales costs, consequently, boost the economy to advance. Existence of standards in an industry negates a situation wherein a buyer is secluded with a single seller and also propagates a reputation of being an ethically qualified industry.
In India there are numerous organisations engaged in formulating and implementing set of standards pertaining to variety of sectors which augment competition in the Indian markets.The fundamental function of these organisations involves evolving, co-ordinating, amending, circulating, reissuing, interpreting, or otherwise invent these standards to assist the affected consumers or adopters. Though most standards are voluntary, they become a requisite only when adopted by regulators as legal requirements in a particular domain and thereupon, competition law comes into effect. Even though standard setting can have significant welfare and efficiency enhancing effects, it is in these situations where competing firms might participate in setting standards which gives rise to concerns regarding the veil behind the effect of standard that may be anti-competitive.Thereby, Standard setting organisations have to ensure competition law is conformed with, in order to enable markets to operate proficiently and competitively.
The procedures and operations of Standard Setting Organisations (SSO) vary from sector to sector. Standards for a new product or service are typically set by representatives of companies producing or selling a particular type of product which invariably leads to confinement of competition.The representatives suggest various probable features or characteristics for the standard and then vote on proposed standards. Subsequently, standard setting may lead to collusive outcomes, as after the fortitude of a standard, considered “ex post,” manufacturers can then produce and/or sell devices that obey to the set standard,. Competition rules usually do not allow companies to discuss and agree the technical developments of an industry amongst themselves, but discussions of standard setting procedures defy the rules. Thus, to relish the fruits of standards, interests of standard adopters needs to be shielded. Another aspect of Standard Setting Organisations that appeals the provisions of Competition law are Standard Essential Patents (SEPs).They are patents that are essential for attaining interoperability between devices and thus, require SEP holders to issue license to the implementers which are to be on Fair, Reasonable and Non-discriminatory (FRAND) terms.
The focal theme of Competition law is to police such anti-competitive conducts present in the market which harnesses consumer welfare by limiting innovation and suppressing consumer choice. Anti-competitive effect resulted from the standard setting excludes the current and potential competitors from the market by effectively raising entry barriers to a market or costs of a firm, via the adoption of a standard. The Competition Commission of India (CCI), which is regarded as a competition regulator, also envisions to curb anti-competitive conduct adopted by corporations. This can be evidenced by a string of fines imposed upon the companies who misuse their power in the market. One such misuse of power is the “Abuse of Dominant Position” by the companies in market. Under the provisions of the Act, dominance refers to the ability of an enterprise to operate independently of market forces, and its position of strength, which empowers it to distress competitors or consumers or the relevant market in its favour.Abuse of a dominant position transpires when a dominant firm in a market, or dominant group of firms, engage in anti- competitive business practices to disregard a competitor or to dissuade future entry of new competitors; as a result, competition is vetoed or narrowed remarkably, thereby emboldening its position in the market. Nevertheless, it is not dominance that is menacing per se, it is abuse of such dominance that is the target of the radar.
Investigation of any complaint vis-à-vis abuse of dominance, spheres around the following three phases, inter alia,
- Determination of a relevant market for the matter in question
- Evaluating the dominance of the said enterprise
- Lastly, if dominant, whether it is abusing its position
CCI reviews the cases under S.19 (4) of the act which enunciates a detailed list of factors that the Commission shall deliberate upon while inquiring into any allegation of abuse of dominance. Few of which are: market share of the enterprise, size and resources of the enterprise, size and importance of the competitors, dependence of consumers, entry barriers, social obligations and costs in the relevant geographic and product market. If the Commission is of the opinion that there exists a prima facie case of Abuse of Dominance it shall in such a case, direct for an investigation conducted by the Director General and after inquiry pass all or any of the orders mentioned under S. 27 of the Act. On passing of an order under above-mentioned circumstances, a person may move an application to Competition Appellate Tribunal (COMPAT) established under S. 53N of the act to adjudicate upon claim for compensation that may arise from the findings of the Commission within 60 days of the receipt of order.The Commission may temporarily kerb any party, during the pendency of the proceedings under S. 33 of this Act, from continuation of the alleged offensive act till the Commission deems fit or pass any order as defined under S. 27 of the act.
In Shri Ravindra Badgaiyan vs M/S Bureau of Indian Standards (Competition Commission Case No.71/2010)1, the informant was a manufacturer of a vermicompost bed. The informant alleged that BIS had set a certification standard for the product and therefore, no product could be introduced in the market without the set mandatory certification thereby, accused the OP of abusing its dominant position. However, CCI contended otherwise and further highlighted on the option to opt for and manufacture certified or non-certified products.
Likewise, while ascertaining whether M/s Telefonaktiebolaget LM Ericsson was dominant, the Commission in Micromax Infomatics Ltd. vs M/s Telefonaktiebolaget LM Ericsson (Competition Commission Case No. 50/2013)2, trailed along the above-mentioned procedure pertaining to Abuse of Dominance and opined that the opponent wasprima facie abusing its dominant position according to S. 4 of the Act. In the instant case, the informant had alleged that the opposite party was abusing its position in the Indian markets by charging exorbitant royalty on the sale of the entire mobile sold by the informant and not the technology bought under the standard essential patents vis-à-vis GSM technology. Abuse of dominance was held in the light of the above-mentioned allegation by the Commission as it was not in the spirit of competition to dictate terms of agreement and act arbitrarily which curb the right of a consumer to choose and constrain a seller from selling a product.
Hence, as is above-mentioned, standard setting even though may be voluntary in nature, in occurrences when they must be adopted, power bestowed upon patent holders or representatives of manufactures acting during setting of standards may be against the fundamental intent of competition rules.
CONCLUSION
In denouement, standards are pivotal for furthering competition. Standard Setting Organisations enable a provision to attain certified quality standards, for the betterment of consumer welfare. Nevertheless, as regards to SEPs it is indicative that technological competency raises the risk that providers of certificates of conformity will have market power which has in some instances led to abuse of dominant position.Bearing the above in mind, enterprises present in the market have their own standard setting procedures wherein representatives set the standards thereby, contravene the competition policy.To avoid such an embargo, systematic considerations should be reserved to scrutinise the procedures. It is thus, ideal to interpret the set standards in their strict sense and rightful intention for fineness of a fair and justified competition.
ENDNOTES
[1] https://www.cci.gov.in/sites/default/files/OrderRavindra110511_0.pdf
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