ARTICLE
29 February 2024

Google vs. App Developers - Madras High Court Refuses To Intervene In The Terms Of Google's Play Billing System On Technical Grounds

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In a significant legal development, the division bench of the Madras High Court (MHC) rendered its decision on 19th January 2024, upholding the judgment pronounced by the single bench on 3rd August 2023.
India Antitrust/Competition Law
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Introduction

In a significant legal development, the division bench of the Madras High Court (MHC) rendered its decision on 19th January 2024, upholding the judgment pronounced by the single bench on 3rd August 2023. The single bench's ruling asserted that the civil court lacks jurisdiction when disputes regarding the terms, clauses, and payment/billing arrangements between parties and Google ("Respondent") are already under examination and awaiting resolution before the Competition Commission of India ("CCI"). Notably, the CCI had also previously issued a comprehensive order on the matter, wherein Google agreed to change its App Store policy.

The MHC decision underscores the fundamental principle that issues pertaining to specialized legislation i.e. Competition Act, 2002 ("the Act of 2002") and the Payment and Settlement Systems Act, 2007 ("the PSS Act, 2007") must be adjudicated by the specialized authorities such as the CCI and the Reserve Bank of India ("RBI"), respectively. It emphasizes the crucial need to uphold and honor jurisdictional boundaries in cases related to competition, reaffirming the significance of entrusting these matters to institutions equipped with the expertise and mandate to address them.

Background

Litigation Before the Single Bench of MHC

The start-up's/ App developers ("Plaintiffs/Appellants") instituted civil suits against the respondent-Google Inc. and its subsidiaries in India before the MHC seeking a declaration on the Payments Terms Policies relating to Service Fees, Terms and Conditions relating to the implementation of Google Play Billing System (GPBS)/User Choice Billing (UCB)/Consumption-Based Model vis-à-vis the Mobile Application as implemented by the Respondents as illegal and unenforceable. Pursuant to which, the Respondents filed an application seeking rejection of the plaint purportedly under Order VII Rule 11(d) of the Civil Procedure Code, 1908 ("CPC") on the ground that the suit is barred in view of the provisions of the Act of 2002 and the PSS Act, 2007. The Single bench on 03.08.2023 allowed the application filed by the defendants and rejected the plaints, inter alia observing that the plaints filed by the plaintiffs are barred by Section 61 of the Act of 2002.

Litigation Before the Division Bench of the MHC

The Plaintiffs filed an appeal against the order of the single bench. The division bench, the division bench of MHC after navigating through the provisions of the Act of 2002 and the PSS Act, 2007 affirmed the observations of the single bench and observed that the reliefs claimed by the plaintiffs mirror the contentions raised by them before the CCI. Therefore, the reliefs as claimed were not beyond the realm of the authorities constituted under the Act of 2002 and the PSS Act, 2007.

Past Investigations before the CCI

The information was filed before the CCI alleging Respondent abusing its dominant position by implementing policies that required the 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) distributed/sold through the Google Play Store but also for certain in-App purchases i.e. purchases made by users of Apps after they have downloaded/ purchased the App from the Play Store. Further, it was alleged that the App developers cannot, within an App, provide users with a direct link to a webpage containing an alternative payment method or use language that encourages a user to purchase the digital item outside of the app (anti-steering provisions). Also, it was alleged that if the App developers do not comply with Google's policy of using GPBS, they are not permitted to list their Apps on the Play Store and thus, would lose out the vast pool of potential customers in the form of Android users. The CCI upon investigation, through an order dated 25.10.2022 found, Respondent of abusing its dominant position and subsequently, imposed penalty on the Respondent along with a cease-and-desist order from indulging in any anti-competitive practices that was found to be contravening the Act of 2002. Also, CCI order embraced some precautionary measures for the Respondents to be followed in future. [For more details please read my earlier blog [Google concedes defeat in India? Agrees to change India App store policy after CCI order].

The appeal filed by Google against the above order dated 25.10.2022 is pending before the National Company Law Appellate Tribunal (NCLAT) and since no stay was granted by NCLAT against the above substantive directions and Google, of its own, did not implement the above-mentioned market corrections1 on its GPBS policy, the App developers first approached CCI to prosecute Google for the offence of contravention of CCI orders under Section 42 of the Act2 and while their application was still pending before the Commission, the App developers chose to avail alternate remedy under common civil law by filing a civil suit for declaration that Google's GPBS violates the Sections 23 and Section 27 of the Indian Contract Act, 1872 (ICA) besides violating the specific provisions of the Payment and Settlement Systems Act, 2007 ("the PSS Act, 2007"), regulated by the Reserve Bank of India (RBI) for online transactions in India.

Analyzing the Division Bench Pronouncement of the Hon'ble MHC

Issues Raised

  1. Whether the Jurisdiction of the Civil Court is ousted in view of the Competition Act, 2002?
  2. Whether the Jurisdiction of the Civil Court is ousted in view of the Payment and Settlement Systems Act, 2007?

Issue 1: Whether the Jurisdiction of the Civil Court is ousted in view of the Competition Act, 2002?

  1. Bar of Jurisdiction of the CCI under Section 61 and 62 of the Act of 2002

Appellants Submissions:

The appellants submitted that Sections 61 and 62 of the Act of 2002 do not bar the jurisdiction of the civil court, as Section 62 of the Act of 2002 enables the plaintiffs to approach the civil court seeking appropriate remedy. Therefore, it was contended that the purposeful insertion of Section 62 of the Act of 2002 into the statute is only to create an additional remedy for an aggrieved party.

Respondent Submissions:

The Respondents Submitted that the Section 61 of the Act of 2002 is a complete bar for exercise of jurisdiction of the civil court and Section 62 of the Act of 2002 cannot be used to render the express ouster in Section 61 of the Act of 2002 nugatory and redundant.

MHC Observations:

The Hon'ble MHC observed that Sections 61 and 62 of the Act of 2002 should be read in conjunction to give a holistic meaning to the applicability of these provisions. Merely because Section 62 states that the provisions of this Act shall be in addition to and not in derogation of the provisions of any other law for the time being in force, it cannot be interpreted to mean that any individual can institute proceedings in a commercial court alleging abuse of dominance, while completely ignoring Section 61 of the Act of 2002.

  1. The bar of jurisdiction of CCI as PSS Act and ICA are pressed.

Appellants Submissions:

The appellants citing the judgement of the Apex Court in the case of Competition Commission of India vs. Bharti Airtel Ltd.,3 contended that the present case cannot be dealt by the CCI as the provisions of PSS Act, 2007 and Indian Contract Act ("ICA, 1872") are pressed into service, therefore when there is another expert regulator, the CCI will have no power to look into the present issue. Further, it was argued that forcing the plaintiffs to enter into an unlawful agreement, wherein an unauthorized payment service provider is being forced to be integrated by Appellant, is clearly a violation of Section 23 of the ICA, 1872 and the CCI cannot determine the violation of Sections 23 or Section 27 of the ICA, 1872.

Respondent Submissions:

The respondent submitted that the present suit filed by the plaintiff are premised on the alleged rights and entitlement arising out of the CCI order and the allegation of unconscionability under provisions of the ICA, 1872 is also based on existence of an alleged economic dominance by the defendants. This dominance can only be ascertained by the Competition Commission of India under the Act of 2002. Further, the PSS Act, 2007 impatiently bars the jurisdiction of the civil courts. Also, it was pointed out that if the plea of the plaintiffs is accepted then there will be a potential for conflicting opinions by the sectoral regulator and the civil court and to avoid scrutiny of an expert regulator, all parties can embark on "set up litigations" to keep the matters pending in civil courts to avoid scrutiny by the regulatory authority.

MHC Observations:

The Hon'ble MHC after going through the plaint of the Plaintiff observed that the
reliefs claimed are not beyond the realm of the authorities constituted
under the Act of 2002 and the PSS Act, 2007.

  1. CCI is not empowered to determine rates, injunction, and order specific performance.

Appellants Submissions:

It was contended that the Section 27 of the Act of 2002 only empowers the CCI to direct a party to discontinue an agreement, to direct a party to not re-enter an agreement, to direct the modification of an agreement and to impose penalty but it does not empower the CCI to determine the rates. The Appellants argued that the Act of 2002 is not a complete code as Section 42 of the Act of 2002 only provides for penal consequences for non-compliance of the orders passed by the CCI. Section 42A of the Act of 2002 mentions compensation in case of loss but does not cover the powers of specific performance or granting injunction. Also, the orders passed by the CCI under Section 42 of the Act of 2002 are not appealable.

Respondent Submissions:

The Respondents Submitted that the Appellant have already filed application seeking initiation of inquiry under Section 42 of the Act of 2022 against the appellants for the non-compliance of the CCI dated 25.10.2022 wherein the Respondents also sought direction under Section 33 of the Act of 2002 not to impose its payment policy. Both applications are pending before CCI. Further, information is pending before the CCI wherein allegations of impugning excessive fee and the alleged abuse of dominant position are being raised against the appellant.

MHC Observations:

The Hon'ble MHC observed that the grievance raised by the plaintiffs can be dealt with by the Commission under the Act of 2002 and it is not beyond the purview of the Act of 2002. Also, the MHC observed that already some of the plaintiffs have approached the CCI under the Act of 2002 and were also granted relief, therefore, there was no reason for not approaching the CCI once again. Also, the Hon'ble MHC, after reading the plaint in its entirety, observed that the reliefs claimed are not beyond the realm of the authorities constituted under the Act of 2002 and the PSS Act, 2007.

Issue 2: Whether the Jurisdiction of the Civil Court is ousted in view of the Payment and Settlement Systems Act, 2007?

Appellants Submissions:

The appellant submitted that the PSS Act, 2007 is not a "complete code" or that the RBI is not a self-contained machinery which can grant all the remedies that a civil court can grant. It was pointed out that the PSS Act, 2007 does not contemplate an adjudicatory mechanism for resolution of disputes. Further, under the PSS Act, 2007, an order of injunction cannot be passed by the RBI, and it does not contemplate an adjudicatory mechanism for resolution of disputes.

Respondent Submissions:

The Respondent submitted that the PSS Act, 2007 is a complete code. The plaints, as predicated, allege violation of the PSS Act, 2007, particularly Section 10A and the RBI Guidelines r/w Section 18 of the PSS Act, 2007 for regulation of Payment Aggregators and Payment Gateways. These allegations can only be adjudicated by the RBI, who is the designated regulator under the PSS Act, 2007. The PSS Act, 2007 impliedly bars the jurisdiction of the civil courts to adjudicate on allegations of violation of the Act. It was pointed out by the respondent that if the plea of the plaintiffs is accepted that the civil jurisdiction is not impliedly barred, then there is a potential for conflicting opinions by the sectoral regulator and the civil court and to avoid scrutiny of an expert regulator, all parties can embark on "set up litigations" to keep the matters pending in civil courts to avoid scrutiny by the regulatory authority.

MHC Observations:

The Hon'ble MHC observed that the scheme of the PSS Act, 2007 demonstrates that the Act provides for a complete and coherent scheme of statutory provisions for attainment of object and purpose of the Act, i.e., regulation of the payment systems. The provisions of the PSS Act, 2007, as such, would, by necessary implication, bar the jurisdiction of the civil court. As has been rightly observed by the learned Single Judge, the RBI is an expert and a regulator. It is appropriate that the expert regulator decides the issue between the parties in case of violation of the provisions of the PSS Act, 2007. Also, it was observed that the PSS Act, 2007 confers RBI to impose civil and criminal levies in the form of fine and penalty for contravention of the PSS Act, 2007. Therefore, it was finally observed that the intention of the legislature to oust jurisdiction of civil court is clearly with the intent to prevent misuse of the process of court.

COMMENT:

In our view, the Hon'ble MHC has rightly upheld the jurisdiction of the CCI and RBI in the present case and rejected the plaint under Order VIII Rule 11(d) of the CPC. The High Court has clarified the interplay of Sections 61 of the Act of 2002, which excludes the jurisdiction of civil courts to adjudicate upon matters reserved for determination of the Commission and the NCLAT under the Act of 2002 vis -a vis Section 62 of the same Act of 2002, which declares that the provisions of the Act of 2002 are in addition and not in derogation of any other law in force in India.

The judgment reflects the spirit behind tribunalisation of the justice delivery system in India [since the famous judgment of the 7-Bench judgment of the Supreme Court in L Chandra Kumar Vs Union of India ( AIR 1997 SC 1125) upheld the creation of specialized tribunal (CAT) to adjudicate upon service matters without impinging upon the extraordinary writ jurisdiction of the High Courts ] and follows the contemporary judicial trend of respect for the domain knowledge of the specialized and expert market /banking regulators, like the CCI and the RBI.

This trend is visible, not only in the ongoing litigations by the Big Tech in India, be it by Amazon, Flipkart, Intel or Meta-WhatsApp but also in traditional sectors like Auto sector, where many High Courts dismissed the Writ petitions filed by many OEMs against CCI prima facie order directing investigation against refusal to open aftermarkets of Car spare parts and Car servicing in India. The MHC emphasized that some of the plaintiffs had already sought recourse before the CCI under the Act of 2002, where relief had been granted and therefore, there was no justifiable reason for these plaintiffs not to approach the CCI once again for resolution.

Here it is also important to distinguish with cases of clash of jurisdiction between the sector regulators and the overarching fair market watchdog, CCI , like the debate on SEP under FRAND terms in the Erriccson case or the Star TV case or the Bharti Airtel Case , where there was a clash between the CCI and the relevant IPR regulator , the Copyright Board or the Telecom Regulator, the TRAI and the question before the High Court , who was the most appropriate regulator to decide the reasonable ness of the amount of royalty or the interconnection charges etc. and the decision was in favour of the sector regulator.

Footnotes

1 Unlike some other related measures arising out of another CCI order dated 20.10.2022, whereupon, on failing to obtain stay orders from both the appellate tribunal NCLAT as well as from the Supreme Court, Google, on 25th January, 2023 unilaterally announced changes in its App policies for OEMs, the Smartphone makers in India by allowing them to license Applications individually. For details , please read my earlier blog https://www.competitionlawyer.in/google-concedes-defeat-in-india-agrees-to-change-india-app-store-policy-after-cci-order/

2 Section 42 of the Act empowers the CCI to (i) punish the enterprises failing to comply with its orders or directions issued, inter alia, under section 27 of the Act, by fine upto INR one lakh ( 0.10 million) per day subject to a maximum of INR Ten Crores ( INR 100 million ), and on failure to comply with orders so issued or to pay such fine (ii) to prosecute such enterprise before the Court of the Chief Metropolitan Magistrate (CMM), Delhi for the offence which is punishable with imprisonment upto three years or with fine upto INR 25 Crores ( INR 250 million), or both as the CMM, Delhi may deem fit.

3 (2019) 2 SCC 521.

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