1

A Project Work In COMPETITION LAW

RELEVANCE OF ESSENTIAL FACILITIES DOCTRINE

SUBMITTED TO: Md. ATIF KHAN

FACULTY: COMPETITION LAW

SUBMITTED BY: PRANAV KHANDELWAL

SEMESTER 9
SECTION A
ROLL NO. 94

SUBMITTED ON:
26th SEPTEMBER, 2016

HIDAYATULLAH NATIONAL LAW UNIVERSITY

Raipur, Chhattisgarh

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ACKNOWLEDGEMENTS

Thanks to the Almighty who gave me the strength to accomplish the project with sheer hard
work and honesty.

I would like to sincerely thank my faculty for Competition Law Md. Atif Khan Sir for giving
me this topic and guiding me throughout the project. Through this project I have learned a lot
about the aforesaid topic and this in turn has helped me grow as a student.

My heartfelt gratitude also goes out to the staff and administration of HNLU for the
infrastructure in the form of our library and IT lab that was a source of great help in the
completion of this project.

PRANAV KHANDELWAL

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TABLE OF CONTENTS
ACKNOWLEDGEMENTS ....................................................................................................... 2

INTRODUCTION ..................................................................................................................... 5

RESEARCH METHODOLOGY............................................................................................... 6

OBJECTIVES ............................................................................................................................ 6

RESEARCH QUESTIONS ........................................................................................................... 6

RESEARCH DESIGN ................................................................................................................. 6

HYPOTHESIS............................................................................................................................ 6

SCOPE AND LIMITATION .......................................................................................................... 6

LITERATURE REVIEW .............................................................................................................. 7

CHAPTERISATION .................................................................................................................... 7

CHAPTER 1: ESSENTIAL FACILITIES DOCTRINE IN VARIOUS JURISDICTIONS ..... 8

UNITED STATES ...................................................................................................................... 8

EUROPEAN UNION................................................................................................................. 10

AUSTRALIA ........................................................................................................................... 12

CHAPTER II: NEED FOR THE ESSENTIAL FACILITY DOCTRINE............................... 14

NETWORK GOODS AND THEIR SPECIFICITIES ........................................................................ 14

INFRASTRUCTURE ................................................................................................................. 15

PHARMACEUTICAL INDUSTRY AND ACCESS TO MEDICINES .................................................. 16

CHAPTER III: ESSENTIAL FACILITIES DOCTRINE IN INDIA ...................................... 17

UNDER COMPETITION ACT, 2002 .......................................................................................... 17

APPLICABILITY OF THE DOCTRINE IN INDIA .......................................................................... 18

SECTORS IN WHICH THE DOCTRINE IS INSTITUTIONALISED ................................................... 20

Oil and Natural Gas ......................................................................................................... 20

Electricity Sector .............................................................................................................. 21

INDIAN APPROACH TO THE DOCTRINE .................................................................................. 21

THE ROLE OF COMPETITION COMMISSION ............................................................................ 22

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CONCLUSION ........................................................................................................................ 24

REFERENCES ........................................................................................................................ 25

ARTICLES .............................................................................................................................. 25

BOOKS .................................................................................................................................. 25

WEBSITES ............................................................................................................................. 25

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INTRODUCTION

Essential Facilities Doctrine (EFD) (or third party access) is a framework in competition
policy whereby a dominant firm cannot refuse to grant access to an essential facility (that is
difficult to replicate), which it controls, to other firms. More often, cases implicating the EFD
arise when a vertically integrated firm that is a natural monopolist in one market refuses to
provide access to the monopolised input to a rival/competitor in the same/adjacent market.

Although such activities can be dealt under refusal to deal case, but traditional refusal to
deal cases are based on the proviso that a dominant firm and its competitors have had a
previous business relationship. EFD cases arise where there may not be such a business
relationship already and therefore such cases are viewed as involving a structural problem in
the market.

The duty to share is mandated by the essential facilities doctrine. This doctrine imposes on
firms that control an essential facility, "the obligation to make the facility available on non-
discriminatory terms."' In other words, if a court finds that a facility is essential, the court can
require the owner to provide equal access at fair prices to all those who desire to use the
facility.

For a facility to be considered essential, one needs to invoke whether: (a) access to the
necessary facility essential to compete, (b) there is sufficient capacity available to provide
access, (c) owner is failing to satisfy an existing market demand or is impeding competition
in the market, and (d) the company demanding access is ready to pay a reasonable access fee.

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RESEARCH METHODOLOGY

OBJECTIVES
The primary objectives of this project report are:
1. To study the about scenario of the essential facilities doctrine in United States,
European Union, Australia and India.
2. To study about the need for this doctrine with respect to different sectors of market.
3. To examine the applicability and relevance of this doctrine in India.

RESEARCH QUESTIONS
The basic research questions which are put forward in the context of this project report are as
follows:
1. What is the essential facilities doctrine and how it has evolved various jurisdictions?
2. What is the applicability of this doctrine in US, EU, Australia and India?
3. What is the need for this doctrine in different sectors of market?
4. How far has the doctrine of essential facilities been applicable in India?

RESEARCH DESIGN
This research project is doctrinal and historical in nature. Since it is largely based on
secondary & electronic source and no empirical method or field research has been done while
making this project. All data has been taken from various books and some of the articles
which were referred through internet.

HYPOTHESIS
Before initiating the preparation of this project report, the researcher assumes that the
essential facilities doctrine is a doctrine invoked under abuse of dominant position in market
and is applied by all jurisdictions for preventing abuse of dominant position.

SCOPE AND LIMITATION

This project report is limited to the study of the essential facilities doctrine with respect to the
jurisdictions of US, European Union, Australia and India only.

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LITERATURE REVIEW

1. Christopher M. Seelen,The Essential Facilities Doctrine: What Does It Mean To Be

Essential?, Vol. 80 Marquette Law Review 1117 (1997).
This article provides a study of the doctrine in US jurisdiction and traces its origin and
evolvement through various case laws.
2. Singh, Jaivir. 2013. Is there a Case for Essential Facilities Doctrine in India? CIRC
Working Paper No. 04. New Delhi: CUTS Institute for Regulation and Competition.
This working paper provides an in depth analysis of applicability of this doctrine in
India with respect to various sectoral regulations.
3. James Kent Scholar and Walter Gellhorn Prize Essential Facilities In The European
Union: Bronner And Beyond
This article provides the history and development of the doctrine in EU jurisdiction
through various cases.
4. Robert Pitofsky and others, The Essential Facilities Doctrine under U.S. Antitrust
Law (2003) 70, Antitrust Law Journal, 443.
This article gives thorough analysis of the essential facilities doctrine in the United
States including its historical backdrop, is applicability in the country and its
limitations and relationship with the public policy.

CHAPTERISATION
CHAPTER I
The first chapter deals with evolution of the Essential facilities doctrine in the United States,
European Union and Australia with the help of various cases.

CHAPTER II
The second chapter deals exclusively with the need for this doctrine in various sectors of
market economy.

CHAPTER III
The third chapter deals with the applicability of this doctrine in India and the relevant
statutory provisions of the Competition act which discusses about the concept.

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CHAPTER 1: ESSENTIAL FACILITIES DOCTRINE IN VARIOUS

JURISDICTIONS

UNITED STATES
Right of access to an essential facility controlled by a monopolist has long been a
controversial subject under U.S. antitrust law. If the facility is truly essential, a denial of
access means the monopolist will be immune, at least for some time, to most instances of
competition. On the other hand, a policy that defines access generously encounters the rather
ideological complaint that it represents a government "taking" of private property, and the
more practical concern that it will be likely to reduce incentives to innovate. Added to these
conflicting policy concerns is the further complication that a simple declaration of access is
seldom enough, and that government authorities, legislative, judicial or regulatory, must also
define the terms of access-price, priority, and other terms and conditions of sale-usually on a
basis that requires continuing supervision.

The essential facilities doctrine arose in the United States not so much as a separate and
distinct doctrine, but as an outgrowth and specific application of the theory and policy
underlying section 2 and to a limited extent section 1 of the Sherman Act. Section 2 of the
Sherman Act1 prohibits monopolization and attempted monopolization the acquisition,
attempted acquisition, or maintenance of monopoly power through anti-competitive means.
An agreement between persons that has the effect of denying others access to an essential
facility can be a basis for liability under section 1 of the Sherman Act.

Another factor that makes the essential facilities doctrine particularly important is the
increase in the number of situations in which the monopolist's dominance depends on
intellectual property. As products and services that are the embodiment of ideas represent an
increasing portion of the economy, dominant market positions based on intellectual property
become more significant.

1
S. 2 of the Sherman Act, 1890 states: Section 2. Monopolizing trade a felony; penalty: Every person who
shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to
monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be
deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a
corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said
punishments, in the discretion of the court.

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The essential facilities doctrine has a long and respected history as' part of U.S. antitrust law.
Generally seen as originating in the Supreme Court's 1912 decision in United States v.
Terminal Railroad Ass'n,2 the Supreme Court and lower courts consistently have applied the
essential facilities doctrine throughout this century in appropriate, though limited,
circumstances. U.S. courts have long recognized that the general rule that a firm has no
obligation to deal with its competitors is subject to certain exceptions. While in most
circumstances "[a]ntitrust law ... does not require one competitor to give another a break just
because failing to do so offends notions of fair play,"3 the Supreme Court has recognized that
"[t]he high value that we have placed on the right to refuse to deal with other firms does not
mean that the right is unqualified."4

It appears that initially as the EFD was being formed, the US Supreme Court did not invoke
the doctrine by name, though three cases are conventionally mentioned as having applied the
doctrine establishing case laws. In all these three cases the US Supreme Court said that the
defendants denied access to a facility that they controlled, access to which was needed for
competition and therefore violated antitrust law.

In the earliest of the judgments - Terminal Railroad (1912)5 the Court said that the railroad
company that owned a bridge across the Mississippi (leading in and out of St Louis) must
give rival companies access to the bridge on equal and non-discriminatory terms. Similarly in
Associated Press (1945)6 the Court told a news network to open membership on non-
discriminatory terms to rival newspapers. Likewise in the case of Otter Trail (1973)7 the
Court found an antitrust violation when a regulated power company refused to transmit
power from rival companies to localities that wanted to buy cheaper power.

The most significant advancement of the essential facilities doctrine occurred in MCI
Communications v. American Telephone & Telegraph Co.8 This case was the outcome of an

2
224 U.S. 383 (1912)
3
Twin Labs., Inc. v. Weider Health & Fitness, 900 F.2d 566, 568 (2d Cir. 1990).
4
Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 601 (1985)
5
United States v. Terminal R.R. Ass'n of St. Louis, 224 U.S. 383 (1912)
6
Associated Press v. United States, 326 U.S. 1 (1945)
7
Otter Tail Power Co. v. United States, 410 U.S. 366 (1973)
8
464 U.S. 891 (1983).

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attempt by MCI to compete with AT&T in long distance calls at a time before AT&T was
divested and had a monopoly in long distance as well as local calls. MCI had gained technical
expertise in the long distance market but needed to use AT&T's local loop to complete calls,
which was denied. In the resulting case the Court affirmed the liability incurred by AT&T in
refusing 'to provide the necessary interconnection' which it saw as a violation of Section 2 of
the Sherman Act, basing the liability on the EFD.

The court listed conditions that defined the doctrine or in other words formulated a test, by
stating that for the doctrine to kick in it must be shown that: (1) a monopolist controls an
essential facility, (2) the facility cannot be reasonably duplicated, (3) the monopolist has
denied access, and (4) it was feasible for the monopolist to share the facility.

In 2004 the United States Supreme Court in the case of Verizon Communications Inc. v. Law
Offices of Curtis V. Trinko, though not dismissing the essential facilities doctrine, did cast a
skeptical eye on efforts to impose S. 2 liability for unilateral refusals to deal and in the facts
of the particular case held there to be no liability under s.2 of the Sherman Act9. In this case it
was alleged that Verizon had refused to interconnect with one of its competitors. This case
was a product of a class action suit brought against the telecom company Verizon on the
grounds that the company failed to adequately share its network with rivals as required by the
Telecommunication Act of 1996. The US Federal Communication Commission found
Verizon in breach of the Act and fined it for not providing inter-connection facilities to rivals.
The Supreme Court stated that non-compliance with the Telecommunication Act, 1996 was
not a valid basis for antitrust liability and that the defendant did not have a general duty to
deal with rivals with whom it had not dealt before.

EUROPEAN UNION
The European Union recognises essential facilities as a principle associated with the abuse of
dominant position (Article 82 of the Treaty of Rome), so much so that recent European
guidelines on abuse of dominance consciously endorse the doctrine.29 However, until 1998,
the ECJ had not formally granted constraint force to EFD. In the last 15 years the European
economies have been largely affected by regulatory reforms aiming for introducing

9
540 U.S. 398 (2004).

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competition in markets where the existence of essential facilities constitutes a hard barrier to
entry in natural monopoly industries such as telecommunications, electricity, gas, railways,
and the postal sector, etc.

The first case in Europe (European Union) was the Commercial Solvents Corp v. Commission
of the European Communities10 to apply the principle. This 1974 judgment said that a
dominant supplier of an input abused its dominant position when it refused to supply the
input to a customer, the supplier's competitor in the downstream derivative market, 'with the
object of reserving such raw materials for manufacturing its own derivatives, and therefore
risks eliminating all Competition' from that competitor. Over time, among other things, the
European Commission has imposed liabilities on owners of ports, harbours, tunnels etc. who
prevented downstream competition through their control of the infrastructure.

The leading case on the operation of the essential facilities doctrine in the EU is now the ECJ
judgment in Oscar Bronner Gmbh v. Mediaprint Zeitungs Gmbh11, in which the European
Court of Justice held that in the application of the essential facilities doctrine it is critical to
show that access is being refused to a facility that is indispensable to the carrying on of the
business of the person requesting the service, inasmuch as there is no actual or potential
substitute in existence for that..(facility)... The ECJ effectively held that if there are
alternatives to that facility, then it is not sufficient to only argue that the alternative method
may be less advantageous and that there have to be technical, legal or even economic
obstacles capable of making it impossible or even unreasonably difficult for the alternate
method to be implemented. The ECJ also held that in order to demonstrate that the creation of
the alternate to the facility under question is not a realistic potential alternative and that
access to the facility is therefore indispensable, it is not enough to argue that it is not
economically viable to develop the alternative.

The European Union has also introduced the notion of 'exceptional circumstances' to counter
the privileges of intellectual property rights (IPRs) when such rights are perceived to counter
competition. One of the early cases in this regard was Volvo v. Veng12 where it was held that
the dominant firm's refusal to grant a licence of its 'protected design' for car body panels,

10
Joined Cases 6/73 & 7/73, Commercial Solvents v. Commission, 1974 E.C.R. 223.
11
[1999] 4 CMLR 112.
12
Case 238/87, AB Volvo v. Veng, 1988 E.C.R. 6211

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standing alone, could not constitute abuse of dominant position, since the right to exclude
'constitutes the very subject-matter of [the IP holder's] exclusive right' under Intellectual
Property law. However in this case it was also held that such a refusal could be considered
abusive in limited situations, including an 'arbitrary refusal to supply spare parts to
independent repairers'. The notion that a higher standard must be met before a dominant firm
can be compelled to licence its IPRs was more clearly expressed in Magill13 and IMS
Health.14 In these two cases, the courts held that 'exceptional circumstances' must exist for
any refusal to licence IPRs to be countered.

The exceptional circumstances requirement was translated into a three- part test: (1) the
refusal prevented the emergence of a 'new product', which the dominant firm did not offer
and for which there was potential consumer demand; (2) the refusal allowed the dominant
firm to reserve for itself 'the secondary market ... by excluding all competition on that
market'; and (3) the refusal was unjustified. IMS Health further clarified that the conditions
must be cumulative for 'exceptional circumstances' to be found.

Subsequently such arguments were used to require open access to information for
interconnecting with the dominant Microsoft networks. While the European Commission has
been developing the essential facilities doctrine in this manner, it has also notably not
extended open access in cases where firms can create their own facility either on their own or
in cooperation with other producers. It can thus be maintained that overall the European
Union has applied the EFD requiring access to infrastructure largely for instances where there
are significant downstream externalities.

AUSTRALIA

Australia is an example of countries that have institutionalised explicitly the EFD by using
the route of mandated regulation rather than through the interpretation of competition law or
regulatory laws. This was a result of Queensland Wire Industries Pty Ltd v Broken Hill Pty
Co Ltd.15 The defendant Broken Hill Party (producer of 97 percent of Australia's steel output)

13
Case C-241/91, Radio Telefis Eireann (RTE) v. Commission, 1995 E.C.R. 1-743, 4 C.M.L.R. 718 (1995)
14
Case C-418101, IMS Health GmbH & Co. v. NDC Health GmbH & Co., 2004 E.C.R. 1-5039
15
[1987] ATPR 40-180 (Fedral Court); [1988] ATPR 40-841 (Full Federal Court;
(1989) 167 CLR 177 (High Court).

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manufactured Y-bar steel which it sold exclusively to its subsidiary Australian Wire
Industries. In turn Australian Wire Industries produced fence posts out of the raw material
and sold them. The plaintiff Queensland Wire Industries sought steel from Broken Hill Party
to competitively produce fence posts for the rural market but the prices charged were so high
that the plaintiff moved the courts with the plea that this amounted to a 'refusal to sell'.
However the judiciary was not convinced about this being conduct that misused market
power and more importantly went on to categorically state that the EFD is not accommodated
by the terms of Section 46 (both High Court and Full Federal Court declined to accept
EFD).16

Important fallout of this was that the Australian government formed the Independent
Committee of Inquiry into Competition Policy in Australia which brought out the Hilmer
Report that recommended a legislative regime to facilitate third party access to 'essential
facilities'. Given the judicial pronouncement on the relation between Section 46 of Trade
Practices Act 1974 and Essential Facilities, the Hilmer Report (in contrast to other
jurisdictions such as the US and EU) felt that access issues and disputes were better resolved
with an administrative solution rather than by relying on a judicial mechanism.

In tandem with the Report, Part IIIA of the Trade Practices Act 1974 (Cth) was incorporated
in the existing Australian competition law to create a national access regime. This regime
attempts to balance the interest of both the suppliers as well as the purchasers and firms with
natural monopolies that are vertically integrated are liable to provide access. The access
regime provides for commercial negotiations of terms and conditions. When they fail, then
arbitration is sought from Australian Competition and Consumer Commission.

Thus, it is evident that Australia follows a national access regime whereby access
requirements are limited to the natural monopolies and the whole process is governed by an
administrative rather than the judicial process. Indeed the doctrine has been pronounced
variously - judicially and/or required administratively, in various parts of the world, including
New Zealand, Canada, South Africa, Israel, Japan, Turkey, Russia and even Guatemala.

16
Section 46 of the Trade Practices Act, 1974 was invoked in this case because it prohibits taking advantage of
the degree of power for the purpose of eliminating or damaging a competitor, preventing the entry of a person
into a market or deterring or preventing a person from engaging in competitive conduct in a market.

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CHAPTER II: NEED FOR THE ESSENTIAL FACILITY DOCTRINE

NETWORK GOODS AND THEIR SPECIFICITIES

It turns out that EFD application and its motivations are best articulated from an
understanding of the economics of network goods. Network goods are characterised by the
value of the good/service to a consumer being dependent upon the number of other
consumers. Put simply, one is likely to value his cell phone more, if more of his friends
possess it. In the present- day, world network goods and services are ubiquitous - some key
instances include telecommunications, the internet, computers and computer software; from
the transport sector services such as those provided by airlines, railroads, shipping and
delivery; from financial sector products such as bonds, equities, derivatives, credit and debit
cards ATMs; and from energy sector grid activities such as electricity and natural gas
production and distribution. While not exhaustive, a reflection of this cursory list attests to
the importance of network goods in the contemporary economy.

Network goods are those goods whose value or utility to the consumer depends on the
number of other consumers using the particular good. A good example of a network good is
cell phone network. The greater the number of people using that network, the more utility or
satisfaction a consumer can derive from using it (since he can access more people on the
network).

When we look at network goods from the demand side, we see that these goods tend to have
increasing returns to scale in consumption. The complementarily of these goods gives rise to
the characteristic network effects or network externalities associated with network goods,
where the value to the buyer of an extra unit of the good increases as more units of the good
are sold. From the supply side, the inherent composite and complementary nature of these
goods makes compatibility or interoperability across networks a crucial constituent of
competition in network goods.

For example, the European Court of Justice (ECJ) ruling of 2004 against Microsoft, which
bundled Windows Media Player with every version of windows and its refused to disclose
interoperability information.

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INFRASTRUCTURE
Infrastructure is another area where EFD is/can be invoked at multiple levels. Primarily, most
infrastructure goods are capital-intensive and therefore not easily replaceable. This logic is
traditionally given for engaging into EFD debate for electricity, telecom, gas pipe lines,
roads/bridges and other such major infrastructural works. However, academically, there are
sound economic arguments that build a case for EFD.

Traditional approach to the EFD is to approach the issue from the 'supply' side. Instead if
'essentiality' were approached from the 'demand' side the doctrine ends up gaining a lot more
substance, particularly in infrastructure. According to Frischmann and Waller,17 the demand
for infrastructure is influenced by infrastructure good being (a) non-rival in consumption - the
marginal cost of allowing a marginal user is zero,14 (b) driven by downstream production
and is not in itself a commodity for direct consumption, and (c) an input into a wide variety
of goods, private, public and non-market goods, suggesting that the social value created by its
use is substantial but also very difficult to measure.15

Thus, the social benefits derived from the downstream uses of transport, electricity (and also
other goods that are characterised by the abovementioned attributes like basic research,
environmental ecosystems and the internet) is best kept in a state of open access as is
possible.

However, the case for open access is stronger for public or social infrastructure because
measuring demand for such infrastructure is difficult due to information and appropriation
problems - consumers are not willing to pay the full value of the positive externalities and to
the extent that they are willing to pay, it will be an amount lower than that which will
maximise social welfare. In other words even if transaction costs of measuring demand were
zero, suppliers would favour existing use and applications that involve appropriable and
observable benefits at the expense' of applications that generate positive externalities.
Therefore, support (subsidy) for such infrastructure goods is important or it will be
undersupplied. The particular conceptual insight here is that with an orientation towards open
access neither the government nor the markets choose any winners, rather the open access
accords benefits to all.

17
Frischmann, B. and Waller, S. W. (2008). 'Revitalizing Essential Facilities', Antitrust Law Journal, 75(1):1-65

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Primarily, most infrastructure goods are capital-intensive and therefore not easily replaceable.
This logic is traditionally given for engaging into EFD debate for electricity, telecom, gas
pipe-lines, roads/bridges and other such major infrastructural works.

Infrastructure good, usually, is: (a) non-rival in consumption the marginal cost of allowing
additional user is zero, (b) driven by downstream production and is not in itself a commodity
for direct consumption, and (c) an input into a wide variety of goods, private, public and non-
market goods, suggesting that the social value created by its use is substantial but also very
difficult to measure. This builds a strong case for EFD.

So whenever infrastructure aids to positive externality (which is usually true) thereby

yielding public and/or non-market goods, EFD should play a pivotal role. In case the
infrastructure is purely commercial, the MCI test (emanating out of a case between MCI and
AT&T in the US) is sufficient (see next section for the test). Although, the applicability of the
test is inhibited relation to access to non-infrastructure assets as was the case in Aspen
Skiing.18

PHARMACEUTICAL INDUSTRY AND ACCESS TO MEDICINES

Pharmaceutical products - owing to their essential nature naturally mandate EFD
implementation. For instance, the 2005 amendment brought Indias patent laws in line with
the Trade Related Aspects of Intellectual Property Rights (TRIPs) framework and promoted a
product patent regime, which undermined the generic pharmaceutical industry of India. India,
which suffers from one of the worlds worst public health and access-to-medicines issues due
to poverty, has therefore found ways to make sure that medicines are available at a relatively
cheap price using various measures.

Recently, India has invoked the compulsory licensing doctrine against Bayer, and granted the
license to Natco. It is pertinent to mention that the Controller found that following three
criteria (as mentioned in Section 84 of the Indian Patent Act 2005) were satisfied in this case,
namely, (a) since Bayer supplied the drug to only two percent of the patient population, the
reasonable requirements of the public with respect to the patented drug (Nexavar) were not
met, (b) Bayers pricing of the drug (2.8 lakhs for a months supply of the drug) was

18
Aspen Skiing Co. v. Aspen Highlands Skiing Corp. 738 F.2d 1509, 1519-22 (10th Cir. 1984)

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excessive and did not constitute a reasonably affordable price, and (c) Bayer did not
sufficiently work the patent in India.

India is not the only country. Thailand, Malaysia and Indonesia are other Asian countries that
have also granted compulsory licensing to AIDS drugs.

CHAPTER III: ESSENTIAL FACILITIES DOCTRINE IN INDIA

UNDER COMPETITION ACT, 2002

Under The Competition Act, 2002 the essential facilities doctrine can be covered under:
1. Sec. 4(2)(c) of the Act which states that there shall be an abuse of dominant position
if an enterprise or a group indulges in practice or practices resulting in denial of
market access in any manner; and
2. Sec. 3(4)(d) which prevents refusal to deal agreement and deems them to be anti-
competitive agreements holding them to agreements that cause an appreciable adverse
effect on competition in India. Explanation (d) to s. 3(4) defines refusal to deal in
an inclusive manner to include any agreement which restricts or is likely to restrict, by
any method the persons or classes of persons to whom goods are sold or from whom
goods are to be bought. It should be noted that since the definition of refusal to deal
is an inclusive one it is not limited to only sale and purchase of goods but would also
cover access to services.

It should be noted that the elements that would need to be considered by the Competition
Commission of India while acting on the essential facilities doctrine would be different
under S. 4 and S. 3 of the Act.

Section 4 of the Act relates to abuse of dominant position and, pursuant to S. 19(4) of the
Act, the Commission while inquiring whether an enterprise enjoys a dominant position or not
under S.4 shall have due regard to, inter alia, the following factors:
(i) monopoly or dominant position whether acquired as a result of any statute or by virtue of
being a government company or a public sector undertaking or otherwise,
(ii) vertical integration of the enterprises or sale or service network of such enterprises,
(iii) economic power of the enterprise including commercial advantages over competitors,

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(iv) entry barriers including barriers such as regulatory barriers, financial risk, high capital
cost of entry, marketing entry barriers, technical entry barriers, economics of scale, high cost
of substitutable goods or service for consumers,
(v) social obligations and social costs and
(vi) relative advantage by way of the contribution to the economic development, by the
enterprise enjoying a dominant position having or likely to have an appreciable adverse effect
on competition.

It should be noted that S. 19(4) of the Act is limited to only the determination of whether an
enterprise enjoys a dominant position or not and does not relate to nor indicate whether the
said factors would have a positive or negative implication on determination of whether there
has been an abuse of dominant position by the relevant entity. Also s. 19(4) of the Act does
not indicate whether the said factors would have a positive or negative impact on
determination of dominant position and it vests the Competition Commission of India with
the flexibility to determine their impact based on the facts and circumstances of the relevant
case.

Consequently, the elements stated in S. 19(4) of the Act would not have a significant impact
on an investigation relating to abuse of dominance allegation against a concessionaire as the
dominant position.

APPLICABILITY OF THE DOCTRINE IN INDIA

The political, economic and social milieu of India has been very distinct from the western
countries and this remains a very important parameter when a doctrine that has its genesis in
the western world has to be applied in our context. Since independence in 1947 till the early
1990s India remained under the License Raj and the industries were regulated and tied down
by various government policies. The industries could develop only in accordance with the
dictates of the Government and their development and regulation was significantly kept under
control by the government. Furthermore, the Government also gave special impetus to Public
Sector Enterprises to grow and serve the dual role of free enterprise and welfare state. During
this time the Government through the Public Sector Enterprises has developed infrastructure
and various facilities. Post the liberalisation era, the industries were deregulated and private
participation and investment has vastly increased. However, a natural distortion existed in the
level playing field as the Public Sector Enterprises had access to their own resources and

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which were not immediately available to the new private entrants. It will also be worthwhile
to mention that since the early days of privatisation various private players have also made
significant investments into various facilities. At this juncture, various entities operating or
looking to enter into a market may want to have access to the various facilities and
infrastructures developed by PSUs and various private enterprises who had invested in
infrastructure.

The issues will range from the applicability of the doctrine itself in the first case. Section 4 of
the Competition Act provides that limiting markets, practices resulting in denial of market
access and leverage to protect another market are specific instances of abuse of dominant
position. Whether essential facilities will be covered under any of these categories will be at
the forefront of the applicability of the doctrine in India. The US Supreme Court has already
felt the need not to recognise the doctrine. The US Supreme Court in Verizon has also
identified that there are uncertain virtues in forced sharing.

Therefore, the principle question would be whether the doctrine should actually be applied in
India. Furthermore, the Courts in India have time and again cautioned from applying
principles that have been developed outside India to be applied in the Indian context. Should
a doctrine actually originating outside India be applied in India and that too which has not
been recognised in US (seen as a leader in antitrust jurisprudence).

Furthermore, regard should be had to the fact that the courts in Europe have applied the
essential facilities doctrine in the background of the Special Responsibility of the Dominant
Undertaking (a concept that is alien to Indian jurisprudence) and in the light of teleological
interpretation adopted to protect the common market in Europe and the overall purpose of
integration of Europe.

If at all the doctrine should be applied under what circumstances should the doctrine be
applied will be the next question should the infrastructure be a public utility or be of great
public importance for the development of commerce and trade in India.

The presence of the EFD in India is intimately linked with infrastructure provision (in
addition to Indian Patents Act's compulsory licencing regime), albeit not as a doctrine upheld
by Indian courts but rather in the regulatory statutes associated with certain infrastructure
goods, in particular in the Telecom Regulatory Authority of India (TRAI) Act, 1997, the

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 20

Electricity Act, 2003 and the Petroleum and Natural Gas Regulatory Board (PNGRB) Act,
2006.

Distinguishing Regulation and Competition Law Since regulation is very important in

relation to the EFD in the Indian context and as of yet there is no competition law case where
this doctrine has been invoked, as a first step it is important to clarify the relationship
between competition law and infrastructure regulation. This relationship can be understood
by recognising the contrast of an ex-post intervention of competition authority as against an
ex-ante intervention by regulators.19

The former seeks to 'repair' markets by imposing liability whereas the latter intervention type
of a regulator aims to 'build' markets. It is this ex post role which is very important in the case
for India where in network- infrastructure sectors, pre-liberalisation monopolists own
networks of transmission and any new entrant cannot easily replicate such a system and
secure a reasonable return to investment. Once a regulator has established a competitive
market the regulatory institution should disappear and the erstwhile regulated industry should
be subject to competition law for any anti-competitive behavioural issues.

SECTORS IN WHICH THE DOCTRINE IS INSTITUTIONALISED

Oil and Natural Gas

The gas transmission grid in India was initially restricted to western, central,northern and
north-east regions owing to lack of customer base for natural gas coupled with short supply.
Moreover, lack of private participation deterred the expansion of gas network at the national
level. To this effect, in order to liberalise the sector, the New Exploration Policy was
introduced in 1999 whereby, mandatory state participation in exploration and production was
withdrawn and international competitive bidding was allowed. Subsequently, the PNGRB
Act, 2006 Act was formulated.

In this Act, the idea of essential facilities is evident in the definition of common carrier i.e.
under Section 2(j) there is non-discriminatory open access given by the Board from time to
time to pipelines for transportation of petroleum and petroleum products.

19
Frison-Roche, Marie-Anne (2011). 'Regulation versus Competition', The Journal of Regulation, I-1.30:550-
560.

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To boost competition in the sector Ministry of Petroleum and Natural Gas issued a draft
regulation according to which once an infrastructure is declared common user facility, it is
compulsory for the body owning the capacity to share it with the other users. The first right to
use remains with the controlling entity and it is the remnant spare capacity which will be
utilised by other entities. Indeed as a result of such regulations the natural gas industry has
expanded over time and solicited considerable levels of investment.

Electricity Sector
The passage of the Electricity Act, 2003 governed the entry of private players into a sector
previously dominated by the public sector. The Act encourages open access in transmission
and distribution, presumably in order to introduce competition in the sector. It does so with
the belief that if charges are paid to the utility that owns the infrastructure, multiple players
will get access to the existing capacity which in turn will imply efficient use of existing
infrastructure and thus alleviate power shortages. The competitive market so created would
ensure lower costs to consumers.

Indeed, the Act under Section 38(2)(d) directs the Central Transmission Utility to provide
non-discriminatory access of transmission to the licensee or generating company on payment
of transmission charges and to any consumer when open access is provided by State
Commission.

A similar provision is made for the State Transmission Utility and Transmission Licensee
under Section 39(2) (d) and 40(2) (d) of the Act respectively. Thus, the legislation
incorporates the basic idea of essential facility to encourage generation, transmission and
distribution of electricity efficiently.

INDIAN APPROACH TO THE DOCTRINE

Indian approach to EFD can be nothing more than predictions. It has nothing to do with the
utility of EFD but more with the nascent stage the Indian Law finds itself in to be. Already
authorities are coming across situations wherein reference is made to EFD but nothing in the
form of case laws has still come up. In India EFD cases would come up as abuse of dominant
position in the form of denial of market access. Section 4(2) (C) of the Competition Act 2002
warns dominant firms against indulging in practices resulting in denial of market access.
Further Section 4 of the said act defines dominance in terms of position of strength in

Relevance of Essential Facilities Doctrine

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relevant market in India which enables it to operate independently of the competitive forces
prevailing in the relevant market or affects its competitors or consumers or relevant market in
its favor. Relevant market has been defined with reference to relevant product market or
relevant geographic market or both.

Section 19 (4) lists down the factors to be taken into consideration while determining
dominance. These include inter alia market share, size, resource, importance of competitor,
dependence of consumer, market structure etc. Factors to be taken into consideration for
determining relevant geographic market or relevant product market are defined under Section
19 of the Act. If we look at the way Indian Law is worded we find close resemblance to EC
law. Especially the insistence on markets be it product or geographic makes it akin to EC law.
US law on the contrary treads a different path restricting monopolization or attempt to
monopolize both having recognition under the Indian Law and the EC Law. Both these
jurisdictions accept dominant position and are against abuse of that position unlike US Law
which looks upon the mere existence of dominant position with contempt. So we might
predict that Indian Law as and when it evolves is likely to follow the EC path rather than the
US path.

THE ROLE OF COMPETITION COMMISSION

Divergent examples above show that while such mandated presence of the EFD can be
introduced into the regulations of select industries, it is not an easily replicable exercise. The
ex-post regulation under the competition law is needed not only as markets mature but as
potential new market develop. No case associated with the EFD has come before the antitrust
authority in India as yet.20 However, it is our understanding that the Competition Act, 2002

20
Something akin to the EFD has been noted by the Supreme Court, albeit not in the context of antimonopoly
law but the duty of private bodies performing public functions. In the case of VST Industries Limited v. VST
Industries Workers' Union and Anr. It was held "it is noticed that not all the activities of the private bodies are
subject to private law, e.g., the activities by private bodies may be governed by the standards of public when its
decisions are subject to duties conferred by statute or when by virtue of the function it is performing or possible
its dominant position in the market, it is under an implied duty to act in the public interest (emphasis added)."
Further, the court asserted that any private company in India that is controlling infrastructure facility through
concession agreement as awarded by the government will be considered as performing a public function and
thus is expected to act in public interest. If the company refuses to deal with any competitor then it would be
under judicial scrutiny for performing an arbitrary action of a body discharging public functions. (2001) 1 SCC
298.

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has sufficient structure for the judiciary to invoke the EFD if it needs to do so. Of course the
doctrine is not mentioned in the Act, but like the European legislation (that appears to have
inspired the Indian law), the Act has clauses that prohibit the abuse of a dominant position -
Section 4(c) asserts that denial of market access to others by a dominant player would be an
abuse of dominant position.

In addition, under Section 18 and 19, it is the duty of the Commission to abolish practices
that have adverse effect on competition. Specifically, sections 19(3) and 19(4) deal with
determining factors that restrict emergence of competition viz. creation of barriers to new
entrants, driving existing competitors out of market, etc. and criterion to ascertain the
dominant position through market share of the firm, size and importance of competitors, etc.
is also specified. One important suggestion however, is to recognise that the Competition
Commission can take cognizance of Section 18 along with section 64(1) to formulate a
regulation to provide free access to common facilities under the EFD. Given this scope it is
up to the judiciary to invoke the doctrine in a case where it needs to be aptly invoked to
enhance downstream spill-over which enhances social welfare.

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CONCLUSION

The essential facilities doctrine has been helpful in opening up competition, particularly
where access to a downstream market results from legal monopolies, other state intervention,
or a facilitys owner using its legal monopoly to monopolize a downstream market. Hence,
the essential facilities doctrine has contributed to the integration of the common market.

It has been pointed out here that there is a good case (welfare enhancing) to be made for a
policy that ensures compatibility or interoperability across the links that form the
complementary composite of a 'network good', infrastructure good/service and
pharmaceutical patents. The problem with any such policy is that it has to balance incentives
to innovate or invest against access to the good/service. In this context, the EFD imposes a
legal antitrust/antimonopoly liability on monopolistic/dominant firms to share facilities that
may be difficult for rivals to duplicate easily. It has been suggested that such liability is
particularly important if the good in question acts as an infrastructural input into a series of
downstream products and has a public interest and not-so-easily-replaceable characteristic.

It has also been noted that the doctrine has been put into effect across various jurisdictions all
over the world either as an expression of the antimonopoly law or through administrative
means using provisions of industry-specific regulation. In India, the doctrine is addressed by
incorporating it into laws governing key infrastructure sectors such as telecom, gas and
electricity where interconnectivity across nodes of a network. The concept of EFD can also
be read into the Patents Act, 1970, which can apply to any sector.

Notwithstanding relative successes and failures of such interventions, as the Indian economy
grows and matures it is inevitable that for wider and more complete encouragement of
competition, the EFD will need to flow in from the Competition Commission and
competition law which is adequately structured to uphold the doctrine.

In addition if we look at the issue of compulsory licencing from the lens of EFD, there is a
need to bring the matters to the table of competition law. It is then for both the competition
authority and the courts to balance the economic and competitive interests of the parties
involved, in the light of the public interest in opening up the market to competition.

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REFERENCES

ARTICLES

1. Christopher M. Seelen, The essential facilities doctrine: What does it mean to be

essential (1997) 80, Marquette Law Review, 1117.
2. Frison-Roche, Marie-Anne (2011). 'Regulation versus Competition', The Journal of
Regulation, I-1.30:550-560.
3. James Kent Scholar and Walter Gellhorn Prize Essential Facilities In The European
Union: Bronner And Beyond
4. Pitofsky and Patterson and Hooks, The Essential Facilities Doctrine Under United
States AntitrustLaw (2002) 70 Antitrust Law Journal 443-462.
5. Singh, Jaivir. 2013. Is there a Case for Essential Facilities Doctrine in India? CIRC
Working Paper No. 04. New Delhi: CUTS Institute for Regulation and Competition.

BOOKS

1. RICHARD WHISH, COMPETITION LAW, (6TH EDN, OXFORD UNIVERSITY

PRESS, OXFORD 2009)

WEBSITES

1. http://circ.in/pdf/Essential_Facilities_Doctrine_India.pdf
2. http://competitionlawyer.blogspot.in/2012/06/destinyofessentialfacilitiesin.html
3. http://www.cuts-ccier.org/pdf/Essential_Facilities_Doctrine.pdf
4. http://www.jonesday.com/files/Publication/Presentation/PublicationAttachment/9cf89
b02-295b-43cf-8a00-3cbea13a85bf/Article%20essential%20facilities.pdf
5. http://www.lakshmisri.com/Uploads/MediaTypes/Documents/L%26S_Web_Competit
ion_Law_Article.pdf
6. http://lawmantra.co.in/essentialfacilitiesdoctrinemeaningandapplicationaspertheusand
eclaws/
7. http://scholarship.law.marquette.edu/cgi/viewcontent.cgi?article=1517&context=mulr
8. http://scholarship.law.georgetown.edu/cgi/viewcontent.cgi?article=1342&context=fac
pub
9. http://ssrn.com/abstract=1738326

Relevance of Essential Facilities Doctrine