Doctrine of Essential Facilities in India – An Introduction by Prakash Vaibhav 1

At a time when the most valued and arguably the electoral USP of the incumbent NDA Government, the Make in India campaign, is looking for spheres and avenues to spread its wings, it becomes an essential question to address and understand the paradigm that will be required to make way for the private capital to replace and compete with the major monopolies which until about two and a half decades ago were largely controlled by the state itself. The large enterprises that sustained and progressed despite the License Raj, had to make large investments in infrastructure that in return also ensured a mega-boost in their business and consumer base post 1992 thereby ensuring their monopoly or in the least something in the nature of oligopoly. However, this also gave birth to a competition crisis in the market and thus, a shortage in the availability of options to the consumers since the firms seeking to compete would be obstructed by the lack of such infrastructural necessities essential for various markets.

Business competition is usually defined as a process of rivalry with the objective of garnering higher market share or more profit. The outcome of a competitive process is expected to result in lower prices, higher output, better quality and innovation. Sometimes, the competitive process faces obstacles when a market player does not have access to certain facilities without which it cannot compete effectively. These are known as ‘essential facilities’. For example, a new airline cannot compete unless it has access to existing runways and parking facilities. It is obvious that essential facilities pose problems in infrastructure or network industries2.

The doctrine of essential facilities is one such creation of law originating in the United States in 1912 that seeks to impede the unfettered use of one’s economic power in terms of infrastructural facilities that may be necessary or essential for a competing firm to emerge. When the facility is in control of a single monopolist3 or an association of complimentary competitors4 , and is of such nature that its essentiality disables a firm from competing on a parallel footing, then the competition regulator must intervene to ensure the availability of such facilities to the competitor(s). First notable mention of this doctrine can be found in the Terminal Railroad combination case5 in which it was developed. Since then, the doctrine has come a long way from USA by travelling into several jurisdictions such as EU, Australia and much recently into the Indian competition sphere too.

The legal understanding of the doctrine became much clearer after the Associated Press judgement in which the Court broadly understood the doctrine to mean that whenever competitors jointly create a useful facility that is essential to the competitive vitality of rivals and (perhaps) essential to the competitive vitality of the market and admission of rivals is consistent with the legitimate purposes of the venture, then the collaborators must admit rivals on relatively equal terms6. One should not, however, misconstrue this as a ruling that every investment made by an entrepreneur would be subjected to third party access. Such misgivings would kill the incentive to make investments in the first place7.

The fundamental problem in the case laws that have followed since then has been in determination of what constitutes “essential facilities”. As has been argued by several authors before, the doctrine has in the past been invoked for innumerable frivolous reasons since its birth8. Therefore, it is evident that the scope for its vague interpretation and abuse to the detriment of the person who sought to take a risk by investing in an area that was unsafe at the time of such investment is humongous.

References

1. V YR BA., LLB., (HONS), HNLU, Raipur

2. Amitabh Kumar, The essential facilities doctrine, The Financial Express, March 23, 2007. Available at http://www.competitioncommission.gov.in/advocacy/Articles_in_press/The_essential_facilities_doctrine_23_3_2007_FE.pdf

3. United States v. Terminal R.R. Ass’n, 224 U.S. 383 (1912)

4. Associated Press v. United States, 326 U.S. 1 (1945).

5. Supra n.2.

6. Supra n.3. As interpreted by Prof. Philip E. Areeda in his pathbreaking paper titled Essential Facilities: An Epithet in Need of Limiting Principles in 1990.

7. Supra n.1.

8. Phillip Areeda, Essential Facilities: An Epithet in Need of Limiting Principles, 58 Antitrust L.J. 841, 854 (1990). See pg. 844.