2019 (6) TMI 1700 - Commission - Law of Competition

No Antitrust Violations Found in Online Sales Restrictions and Pricing Policies; Case Closed.

The Commission concluded that there were no violations of the Competition Act in the allegations against the Opposite Parties (OPs) concerning ... Exclusive distribution agreement - resale price maintenance - territorial allocation / market infiltration policy - restriction on online sales - appreciable adverse effect on competition (AAEC) - relative market power - agreement among enterprises at different stages or levels of the production chain - facilitation of cartel / concerted conduct at retailer level - Section 3(4) of the Competition Act, 2002 - Section 3(3) of the Competition Act, 2002Restriction on online sales - exclusive distribution agreement - appreciable adverse effect on competition (AAEC) - Restriction imposed by OP-1 on distributors/retailers from selling Vivo products via online platforms does not contravene Section 3(4) and does not cause or is not likely to cause AAEC in the market for sale and distribution of smartphones in India. - HELD THAT: - The Commission found that Vivo products were readily available to consumers through multiple e-commerce portals and via the official Vivo e-store, and that the Primary Distribution Agreement between OP-2 and OP-1 related to offline sales and did not grant OP-1 exclusive rights over online sales. Given availability of alternative channels and absence of supply withholding to consumers, the contested clause in the Secondary Distributorship Agreement did not directly restrict consumer access or withhold supply and therefore was not likely to cause AAEC. The Informants also had the option to exit the distributorship and no exit barriers were established.No contravention of Section 3(4)(c) insofar as the restriction on online sales is concerned.Territorial allocation / market infiltration policy - agreement among enterprises at different stages or levels of the production chain - appreciable adverse effect on competition (AAEC) - The Market Infiltration Policy (MIP) enforced by OP-1 (territorial/geographic restrictions and penalties for infiltration) does not, on the material before the Commission, cause or is likely to cause AAEC in the relevant market and therefore does not contravene Section 3(4)(c). - HELD THAT: - The Commission accepted that OP-1 enforced the MIP, but OPs justified the policy on grounds of protecting investments of distributors/retailers, preventing counterfeits through IMEI tracking, enabling accurate computation of rewards, and preventing predatory pricing. The Informants did not dispute that they were free to deal in other brands within or outside their territory. In light of the facts, prior Commission reasoning in similar matters, and absence of evidence of foreclosure, entry/exit barriers, or consumer harm, the MIP was not found to produce AAEC in the market for sale and distribution of smartphones in India.No contravention of Section 3(4)(c) on account of the MIP.Resale price maintenance - minimum operating price (MOP) - appreciable adverse effect on competition (AAEC) - The imposition of a suggested Minimum Operating Price (MOP) by OP-1, resulting in alleged resale price maintenance, does not, on the record, cause or is likely to cause AAEC in the relevant market and thus does not contravene Section 3(4)(e). - HELD THAT: - The Commission noted the presence of multiple distributors and retailers, extensive online availability, and intense inter-brand competition in the smartphone market. The Informants failed to establish that the MOP produced adverse effects on competition or that distributors were locked in without alternatives. Given consumer access to competitive prices and the distributors' ability to switch brands, the MOP did not amount to RPM causing AAEC.No contravention of Section 3(4)(e) in relation to the MOP/RPM allegation.Facilitation of cartel / concerted conduct at retailer level - Section 3(3) of the Competition Act, 2002 - The allegation that the OPs facilitated or contributed to a cartel among retailers under the aegis of AIMRA in contravention of Section 3(3) is not substantiated by evidence and is rejected. - HELD THAT: - The Informants advanced a general allegation of OPs facilitating a retailer-level cartel but did not implead any retailers or AIMRA or furnish tangible evidence to substantiate facilitation or concerted conduct. The OPs controverted the claim and the Commission found the allegation to be unsubstantiated on the record.No case made out for contravention of Section 3(3).Relative market power - appreciable adverse effect on competition (AAEC) - OPs do not possess such relative market power as to cause AAEC on the basis of combined or single-brand market shares as per the material on record. - HELD THAT: - The Commission examined publicly available market-share data (IDC, shipment data) and the parties' submissions regarding corporate relationships. The Informants' contention that the market shares of brands alleged to be part of a single corporate group (BBK brands) should be aggregated was not supported by evidence of common control or shared decision-making. On the available data, the OPs did not demonstrate market dominance or sufficient influencing power to cause AAEC.Market power insufficient to establish AAEC; combined-market-share aggregation claim rejected for lack of evidence of common control.Final Conclusion: The Commission, after examining the Information, submissions and available market data, found no prima facie case of contravention of Sections 3(4) or 3(3) of the Competition Act, 2002 by the Opposite Parties and accordingly closed the matter under Section 26(2). Issues Involved:1. Restriction on online sales.2. Market Infiltration Policy (MIP).3. Minimum Operation Price (MOP) violation.4. Allegation of facilitating a cartel at the retailer level.Detailed Analysis:1. Restriction on Online Sales:The Informants alleged that the Opposite Parties (OPs) restricted them from selling Vivo branded mobile handsets and accessories online, limiting their freedom of trade and the supply of Vivo products in the market. The Commission observed that Vivo products are readily available online on various e-commerce platforms and the OPs also have a dedicated e-shopping portal. The primary distribution agreement between OP-1 and OP-2 pertains to offline sales, and no rights for online sales were given to OP-1. Therefore, the restriction on online sales by OP-1 does not directly withhold the supply of Vivo products in the market. The Commission found no contravention of Section 3(4)(c) of the Act regarding the restriction on online sales.2. Market Infiltration Policy (MIP):The Informants submitted that the OPs enforced a policy of penalizing distributors/retailers for market infiltration, violating Section 3(4)(c) of the Act. The OPs justified MIP as a measure to prevent duplication of smartphones and counterfeits. The Commission noted that no restrictions were placed on the Informants in dealing with other brands either within or outside the allocated territory. The Commission concluded that MIP did not cause or is likely to cause an Appreciable Adverse Effect on Competition (AAEC) in the market for smartphones in India, and thus, no contravention of Section 3(4)(c) of the Act was found.3. Minimum Operation Price (MOP) Violation:The Informants alleged that the practice of mandating a MOP resulted in Resale Price Maintenance (RPM), which is anti-competitive and in contravention of Section 3(4)(e) of the Act. The Commission noted that consumers have multiple options to purchase Vivo smartphones, including online platforms at competitive prices. The adverse effect on competition due to MOP was not established by the Informants. The Commission observed that the smartphone market is highly competitive, with many players and frequent launches of new brands, ensuring no AAEC due to MOP policy. Consequently, no contravention of Section 3(4)(e) of the Act was found.4. Allegation of Facilitating a Cartel at the Retailer Level:The Informants alleged that the OPs facilitated a cartel at the retailer level under the aegis of the All India Mobile Retailers Association (AIMRA), violating Section 3(3) of the Act. The Commission observed that this allegation was not substantiated with any evidence and was controverted by the OPs, stating that no retailers or AIMRA were impleaded in the matter. In the absence of tangible evidence, no case was made out for contraventions of Section 3(3) of the Act against the OPs.Conclusion:The Commission found no competition concerns in the entire matter and ordered the case to be closed under Section 26(2) of the Act. The Secretary was directed to communicate the order to the parties accordingly.