Saturday, August 24, 2013

Guest Post: Abuse of Dominant Position by ESPN

(In the following post, Mr Sapan Parekh, a student at the National Law School of India University, Bangalore, considers whether the telecast policies of ESPN are consistent with competition law)

Football fans in India received the shock of their lives when ESPN Star Sports (“ESS”) did not broadcast the opening English Premier League match between Liverpool and Stoke City on any of its regular channels (Star Sports and Star Cricket) but only on Star Cricket HD (here). This caused an outrage among the fans as was quite apparent from the nasty comments on various fora operated by ESS. While ESS’s actions have been condemned, whether the same can lead to any legal remedy is a question which involves deep consideration of the Competition Act, 2002( “Act”).
The Act stipulates that no enterprise shall abuse its dominant position [section 4(1)]. In order to come to any conclusion regarding contravention of this provision, a step-by-step analysis is imperative.
1.      1. Is ESPN Star Sports an “enterprise” for the purposes of the Act?
A fundamental issue that must be addressed at this stage is whether the Act would be applicable to companies not incorporated in India or in cases where the anticompetitive acts are carried outside the territory of India. Generally, when determining the applicability of the Act in such circumstances, the deciding factor is whether a company’s activities have any anticompetitive effects in the territory of India [s.3(1) and  explanation to s.4]. It is not necessary for the alleged anticompetitive acts (like an agreement) to have been committed in India; just  that the acts must cause/likely to cause anticompetitive effects in India. Thus, though ESS has not been incorporated in India, the Act nevertheless governs its activities as far as its effects on the Indian market are concerned.
Section 2(h) of the Act defines enterprises as any person (which includes a company) who engages in, inter alia, production of articles or goods, or the provision of services of any kind. Further, section 2(u) defines “service” as including service of any description made available to potential users in connection with, inter alia, entertainment and amusement. ESS is a corporation engaged in the broadcast of various national and international sporting events (services for entertainment/amusement). Evidently,  ESS falls squarely within the definition of “enterprise” for the purposes of section 2(h), thus attracting the full force of the Act.
2.      2. Does ESPN Star Sports have a dominant position?
The Act defines a dominant position as a position of strength which would allow an enterprise to operate independent of competitive forces prevailing in the relevant market or  affect its competitors/consumers/ relevant market in its favor (Explanation to section 4).
From the definition of dominant position it is clear that a dominant position is always with respect to a relevant market. The Act, in section 2(r), states that the relevant market is to be determined with respect to the relevant geographic market [area in which the conditions of competition for goods/services are distinctly homogenous] and the relevant product market [market comprising all products/services which are regarded as interchangeable by the consumer]. In order to determine relevant product market reliance is placed on the conditions stated in section 19(7). In the given circumstances, strong consumer preference (as most football fans would attest to) and specialized producers of the content [see section 19(7)(c) and 19(7)(e)] ensure that these services provided by ESS cannot be substituted by services provided by any other channel. Thus, the relevant market for ESS would be the market for service of a broadcaster for Premier League matches in India.
Moreover, ESS is the only company with a license to broadcast Premier league matches in India. Unarguably this constitutes a commercial advantage over competitors [section 19(4)(d)]. This means that ESS has a complete share of the relevant market. Thus, prima facie ESS is dominant in the relevant market.
3. Has ESPN Star Sports abused its dominant position?
Section 4(2) of the Act comprehensively lists down the acts of dominant enterprises which would be termed as abuse for the purposes of this statute. For the purpose of this discussion, it can be argued that ESS abused its dominance by (a) imposing supplementary obligations which have no connection with the subject of contract, and (b) leveraging  dominant position in one relevant market [service of a broadcaster for Premier league matches in India] to protect another relevant market[service of providing HD sports channels in India].
a.        Supplementary obligations which have no connection with the subject of contract 
The consumers, till recently, paid a fixed amount for viewing Premier League matches on the regular channels. However, suddenly ESS expects consumers to pay for provision of the same service of broadcast but only in HD i.e. ESS has bundled HD quality with the Premier League matches. This would prima facie constitute “tying”, i.e. it is impossible to take one product without another. The acts of ESS would therefore constitute an abuse of its dominant position. However, one should remember that not all forms of tying are anticompetitive.  For instance, railways on their certain long distant trains bundle food charges with travel charges. However, it is not likely that this would be held as an abuse of its dominant position as according to commercial usage there is a rational nexus between availing the service of travel by trains on long distant routes and the  provision of food on trains. 
b.  Leveraging dominant position
The market for service of broadcast of HD sports channels in India is populated by channels like Ten HD, Trace Sports HD and SONY Six HD. These are competitors to ESPN HD and Star Cricket HD which are operated by ESS. It is arguable that ESS used its dominant position in the relevant market (broadcast of Premier league matches in India) to protect (and in all likelihood expand) its share in another market (the market for broadcast of HD sports channels in India). Given the frenzy surrounding Premier League matches, if such anticompetitive acts of ESS are allowed to continue, it would not be surprising if the demand for ESS’s HD channels hit the roof while its competitors lose market share.
While a prima facie case has been made out against ESS, however it would be hasty and incorrect to conclude that any act of an enterprise which adversely affects consumers would contravene the provisions of the Act. For instance, a broadcaster with an exclusive license for the broadcast of Cricket World Cup could definitely price his services higher than regular channels due to the high cost of the license or to possibly take advantage of the inelastic demand. This price hike would become anticompetitive and be categorized as an abuse of dominant position only if the new price is exorbitant, to the extent of being unfair to the consumers. Thus evidently, every act of an enterprise affecting consumers adversely would not be considered as anticompetitive. Only those acts which are committed by a dominant enterprise and which satisfy the conditions of abuse as enunciated under section 4 would be anticompetitive for purposes of section 4.
Remedy
The remedy is available under section 19 of the Competition Act. Any person can file “information” regarding a supposed contravention of the Act in the Competition Commission of India. If the Commission finds a prima facie case against ESS, it shall order the Director General to investigate the allegations in the information and subsequent procedures would kick in, as has been mandated under the Act (section 26).
Whether the machinery of the Competition Act shall be used as a remedy for the alleged anticompetitive practices of ESPN Star Sports, only time will tell.

2 comments:

Alice said...

Its a very well written article and very well knit with the facts and law.

Thanks,

Nidhi

zacarias said...

Any idea as to what was being shown on Star Sports and ESPN at the said time?

My point being,ultimately the discretion to decide which match has to be shown on which channel lies with ESS right, or would that also be construed as an abuse of dominant position?