New Delhi: The Delhi High Court Tuesday briefly took up Apple Inc.’s challenge to the changes made to India’s competition law last year, along with a 3 March order by the Competition Commission of India (CCI), directing the multinational company to submit their audited financial statements for 2023-2024, so that penalties could be imposed on its global turnover.
Essentially, Apple’s plea argues that if the CCI orders and the amended provisions of the competition law and regulations are to be followed, and a penalty of 10 percent of their average global turnover derived from all products and services globally is imposed on them, the amount would come to USD 38 billion.
A bench of Chief Justice Devendra Kumar Upadhyaya and Justice Tushar Rao Gedela was informed that the Union Ministry of Corporate Affairs and CCI filed their counter-affidavit on Monday in response to Apple’s petition but it was not on record. This led the two-judge bench to direct the respondents to place their responses on record, while listing the matter for further hearing on 27 January. The court also agreed to Apple’s request for some more time to respond to the counter-affidavit.
Significantly, Apple has challenged Section 27(b) of the Competition Act, 2002, which allows the Commission to impose any penalty it deems fit, but not more than 10 percent of the average turnover for the last three preceding financial years, upon each person or enterprise which is party to such abuse. Simply put, the provision allows the CCI to impose penalties up to 10 percent of an enterprise’s average turnover for the last three years on grounds of anti-competitive agreements and abuse of dominance.
How courts have defined ‘turnover’
In the 2017 ruling in Excel Crop Care vs CCI, a division or two-judge bench of the Supreme Court came up with a definition for the term ‘relevant turnover’, meaning only that turnover of the product or service, in relation to which the contravention occurs, and not the turnover of the entire multi-product company. Essentially, the court made it clear that the penalties imposed should be based on the revenue generated from the products or services involved in the alleged violation, rather than imposing a penalty on their entire global turnover.
For example, an enterprise which is engaged in the market for selling toys worth Rs 100 and is selling scientific calculators worth Rs 20,000, finds itself violating the Competition Act, for toys only. In such a case, it would be arbitrary and disproportionate to levy a penalty on his entire turnover of Rs 20,000 (for calculator) and Rs 100 (for toys), when the contravention was only in relation to the toys. Thus, the Supreme Court made this position clear that penalties imposed should be calculated on the basis of the company’s relevant turnover, and not the entire global turnover.
In the Excel Corp case, the Supreme Court also referred to the doctrine of proportionality, which was also invoked by Apple in its plea in the present case. The doctrine is based on the principles of equity and rationality, the court had said while interpreting the 2002 Act in 2017.
“No doubt the objective contained in the Act viz. to discourage and stop anti-competitive practices has to be achieved and those who are perpetrators of such practices need to be indicted and suitably punished. It is for this reason that the Act contains penal provisions for penalising such offenders. At the same time, the penalty cannot be disproportionate and it should not lead to shocking results. That is the implication of the doctrine of proportionality,” the court had ruled while adding that imposing penalties on a company’s total turnover, including on products “which were in no way connected with anti-competitive activity” could lead to shocking results.
Changes to India’s competition law
Until March 2024, the prevailing legal position was the one enshrined in the 2017 ruling—that only the infringing or violating enterprise was the basis for calculating the penalty. However, after last year’s amendments the needle has significantly moved.
However, in March 2024, the Centre amended Section 27(b) of the Act, to insert Explanation (1) and (2), which empowers the CCI to consider the “global turnover” derived from all products and services for imposing penalty under the Competition Act. Besides this, the Centre also revised the Penalty Guidelines and the Turnover Regulations—a move that has been termed as “unconstitutional and illegal” by Apple in its plea.
Specifically, Apple has challenged Guidelines 3(7) and 8(1) of the Penalty Guidelines as arbitrary and contrary to the Competition Act. These guidelines essentially give the CCI unfettered power to impose any amount of penalty in an arbitrary manner, Apple argues.
A big effect brought about by these changes to the competition law also includes permitting the imposition of penalties on Apple’s global turnover, generated from outside the CCI’s jurisdiction, including from geographical territories outside India. However, Apple, while terming this move as “irrational” and disproportionate, said that the CCI does not have any jurisdiction to consider products or services marketed beyond the territory of India.
How courts have dealt with similar issues in past
In August this year, the Supreme Court allowed Google’s challenge to a ruling passed by the National Company Law Appellate Tribunal (NCLAT), which in March, partially upheld the penalty imposed on it by the CCI to the tune of Rs 216.69 crore, after noting that it did indeed abuse its dominant position. Although the NCLAT brought down the initial penalty imposed by the National Company Law Tribunal (NCLT), which was originally Rs 936.44 crore, it did find Google guilty of anti-competitive practices.
The case against Google stemmed from its Play Store policies, and competitors approached the CCI saying that Google’s Play Store policies required app developers to exclusively and mandatorily use Google Play’s Billing System (GPBS) not only for receiving payments for apps (and other digital products like audio, video, games) sold on Google Play Store but also for in-app purchases.
The case still awaits an outcome and could potentially reshape the competition law landscape in the country.
This is not the first time that governments have come down on tech giants for anti-competitive practices. Very recently, in a significant verdict that comes as part of the US government’s Department of Justice’s case against the tech giant, Google, the United States District Court of Columbia had ruled that Google must share its search results and some data with its rival companies in order to loosen up its monopoly, and to allow others to compete.
In its plea against Google, the Department of Justice had sought to break Google’s monopoly by attempting the court to order the company to sell its browser, Chrome. The US government also sought diminishment of its control over Android. It argued that by doing this, the monopoly exercised by Google could be broken. However, the court disagreed, and said the present case was a “poor fit” for divestiture, since the US government was unable to show how these measures would lessen Google’s monopoly.
In October this year, the UK Competition Appeal Tribunal (CAT) ruled that Apple had abused its dominant position by charging app developers unfair commissions. According to Reuters, the US tech company was on the hook for hundreds of millions of pounds in damages, in this case, which was filed on behalf of iPhone and iPad users in the United Kingdom. The tribunal ruled that Apple had abused its dominant position from October 2015-2020 by eliminating competition in the app distribution market and by charging developers “excessive and unfair prices” as commission.
That same month, a group of 55 Chinese iPhone and iPad users filed a complaint with China’s market regulator accusing Apple of abusing its market dominance by forcing consumers to purchase digital goods exclusively through Apple’s In-App Purchase system.
(Edited by Viny Mishra)