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CCI's fine on Google: A wake up call for Indian companies

April 15, 2014 12:42 IST

CCI's fine on Google: A wake up call for Indian companies

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Avirup Bose

The fair trade body's penalty on the internet giant should be a wake-up call for Indian companies that tend to be lackadaisical towards regulatory investigations, says Avirup Bose.

The Competition Commission of India (CCI) recently imposed a penalty of Rs 1 crore (Rs 10 million) on Google, for non-cooperation with the CCI's ongoing investigation against the Internet giant.

The CCI in an order imposing the penalty noted that Google, without any reasonable cause, had failed on several occasions to comply with requests for information by the office of the director general (the CCI's investigative arm).

Google is being currently investigated by the CCI for alleged abuse of its dominant position in the internet search and search advertising markets.

CCI's probe, which mirrors that of the US and European Union (EU) competition enforcement agencies, enquires if Google is manipulating its search engine to create a "search bias" that drives users towards ancillary services owned and operated by the company (such as YouTube, Google Maps, Google Finance and so on).

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Photographs: Jason Lee/Reuters

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The Rs 1-crore penalty was imposed by the CCI under section 43 of the Competition Act, 2002 - which allows the fair trade body to impose a maximum penalty of Rs 1 crore for each instance of failure by a company to co-operate with the CCI's investigation.

The penalty imposed under section 43 is a procedural one and is in addition to any substantial monetary penalty that may be imposed by the CCI if it concludes that Google has indulged in anti-competitive conduct, at the end of its investigation.

A penalty of Rs 1 crore may not be a lot of money for Google whose annual revenue from India, for the financial year 2013, was a staggering Rs 2,076.8 crore (Rs 20.76 billion).

However, Google and the senior management of companies that are currently being investigated by the CCI would be erring if they do not read the fine print of the CCI's decision and learn more.

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Image: CEO Eric Schmidt at Google's headquarters in Buenos Aires, Argentina.
Photographs: Enrique Marcarian/Reuters

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It's a wake-up call for Indian companies that tend to be lackadaisical towards regulatory investigations.

Non-compliance with CCI's directions is no longer an option. It should be noted that each instance of non-cooperation can be penalised upto a maximum amount of Rs 1 crore.

For example, in Google's case, the CCI noted that the company had not co-operated with the CCI on seven separate occasions, and the regulator could have penalised Google for Rs 7 crore.

However, the CCI reduced the penalty to Rs 1 crore on account of Google's delayed compliance with the directions of the CCI.

Further, the CCI held that instances of non-cooperation by Google could be considered an aggravating factor while tabulating the aggregate penalty against it, if the CCI would conclude that Google had indeed indulged in anti-competitive conduct. 

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Image: Google's employees play table soccer at a recreational area at their Singapore office.
Photographs: Edgar Su/Reuters
Tags: CCI , Google

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Both under the US and EU competition law regime, obstruction of antitrust proceedings can be treated as an aggravating factor for increasing the overall level of fine that may be imposed for a particular competition law infringement.

For a company like Google, which may face a penalty of up to about $5 billion (10 per cent of Google India's previous three-year annual average turnover of $49.3 billion) if it is found to have violated the provisions of the competition Act, it may not be wise to go down the path.

The decision also held that although companies may delay their compliance with the CCI's directions for "reasonable cause", abstract excuses such as broad and complex scope of the CCI's investigations or lack of a centrally-managed database would not be acceptable.

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Image: Google's employees at a pantry decorated with vintage Singapore advertisements and signages.
Photographs: Edgar Su/Reuters
Tags: CCI , Google , EU , US

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Therefore, the parties would be required to link each instance of non-compliance with the specific inability that caused it. The CCI also held that delayed compliance with the CCI's directions may be held as non-compliance with such directions altogether.

It is important to appreciate why the CCI is empowered to impose such substantial "procedural fines" to discipline companies that refuse to co-operate with ongoing investigations.

The CCI's mandate is to regulate anti-competitive market practices, which are often conducted in secret and are, therefore, extremely difficult to prove.

For example, cartelising firms will seldom leave a trail of evidence of their concerted action; therefore, the CCI needs access to internal documents of such firms to deduce the existence of concerted behaviour.

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Image: A Google Android figurine sits on the welcome desk as employee Tracy McNeilly smiles at the Google office in Toronto, Canada.
Photographs: Mark Blinch/Reuters
Tags: CCI

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If the CCI does not have the power to ensure compliance with its directions seeking internal documents/data of investigated companies, such companies would easily refuse access to the information and sabotage the investigation.

Therefore, it is vital for companies that are being investigated by the CCI is to adopt a document-management plan.

This will allow a company to efficiently manage their litigation-related documents, delineate documents/data that fall within the scope of a particular competition law investigation and effectively co-operate with the CCI.

Companies should be careful that persistent non-cooperation with the CCI's on-going investigations would not only make it vulnerable to monetary penalties under section 43 of the Competition Act, but may also nudge the CCI into launching the more onerous dawn raid proceedings (unannounced search and seizure activities), which would involve forcible entry into the offices of investigated companies to confiscate incriminating evidence.

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Image: A man walks by the reception desk at the Google office in Toronto, Canada.
Photographs: Mark Blinch/Reuters
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The CCI's decision indicates that from now on it may hold companies responsible for delaying its investigations, reinforcing the regulator's commitment to complete all anti-competitive investigations in a time-bound manner.

Earlier this year, the CCI had indicated that it intends to complete behavioural competition law proceedings within one year of such proceedings being initiated.

Given the track record of bureaucratic hurdles of Indian regulators, this is a credible commitment from a new-age economic regulator.

The writer is a competition lawyer with the Competition Commission of India. These views are personal.

 


Image: People walk by a YouTube sign at the Google office in Toronto, Canada.
Photographs: Mark Blinch/Reuters

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