Competition Law: INFORMATION, UPDATES AND ANALYSIS, July 2017

India – Competition Commission of India (‘CCI’)

CCI imposes penalty on Hyundai Motor India Limited for entering into anti-competitive agreement with dealers.
June 14, 2017

Information was filed in the CCI against Hyundai Motor India Limited (‘HMIL’) by Fx Enterprise Solutions India Pvt. Ltd. and St. Antony’s Cars Pvt. Ltd. HMIL is engaged in the sale and distribution of motor vehicles and its parts in India. CCI found that HMIL enjoys a dominant position in the market for after sale services of Hyundai brand of cars. CCI further found that HMIL imposes arrangements on its dealers which results in ‘Resale Price Maintenance” (‘RPM’). The arrangements included monitoring of the maximum permissible discount level through a “Discount Control Mechanism” and a penalty mechanism for non-compliance of the discount scheme. The level of discount was determined by HMIL for each model and variant of the passenger cars and HMIL had also appointed a Mystery Shopping Agency to collect data from dealers for such monitoring and reporting to HMIL. The arrangements further required the dealers to purchase lubricants and oils only from two designated vendors: Indian Oil Corporation Limited and Shell Oil Company. All dealers were mandated to do so and were penalized if they used non recommended lubricants and oils. CCI concluded that by imposing these arrangements on its dealers, HMIL has contravened the provisions of Section 3(4)(e) read with Section 3(1) of the Competition Act,2002 (‘Act’). CCI therefore directed HMIL to cease and desist from indulging in conduct that has been found to be in contravention of the provisions of the Act. CCI also imposed on HMIL a penalty of an amount of ₹ 87 crore which is equivalent to 0.3 % of HMIL’s average turnover of the last three financial years

CCI rules against Airtel alleging abuse of dominant position by Reliance Jio Infocomm Limited.
June 9, 2017

Bharti Airtel Limited (‘Informant’) had filed an information against Reliance Industries Limited (‘RIL’) and Reliance Jio Infocomm Limited (‘Reliance Jio’) alleging contravention of the provisions of Sections 3 and 4 of the Competition Act, 2002. It was alleged that RIL has invested approximately ₹ 1,60,000 crore in Reliance Jio for setting up of the infrastructure for providing telecom services on pan India basis. It was further alleged by the Informant that RIL and Reliance Jio are in a dominant position because no other telecom operator other than Reliance Jio has ever made an investment of such magnitude in the telecom sector and managed to garner a subscriber base of 72 million in just four months. The Informant alleged that the free services being offered by Reliance Jio under one scheme or the other since the inception of its business is in contravention to the provisions of the Act which prohibit unfair or predatory pricing. CCI was of the opinion that opening up of telecommunication market to private players has witnessed telecom operators competing with each other, often resulting in decrease of tariffs and constant improvements in services. CCI found that the total subscriber base held by Reliance Jio is a mere 7 per cent of the total market and hence it could not be said to be in a dominant position. CCI noted that providing free services cannot by itself raise competition concerns unless the same is offered by a dominant enterprise and is shown to be tainted with an anti-competitive objective. Accordingly, CCI concluded that no contravention of the provisions of Sections 3 or 4 of the Competition Act, 2002 could be established on the basis of facts and allegations put forth by the Informant.

CCI dismissed complaint against Whatspp Inc. alleging abuse of dominant position.
June 1, 2017

Information was by Mr. Vinod Kumar Gupta on behalf of Fight for Transparent Society against Whatsapp Inc. (‘Whatsapp’) alleging contravention of the provisions of Section 4 of the Competition Act, 2002. It was alleged by the Informant that after being acquired by Facebook in 2014, Whatsapp introduced many changes in its private policy on August 25, 2016. In terms of the amended private policy users of Whatsapp are forced to share their account details and other information with Facebook in order to continue availing the services of Whatsapp. It was further alleged that Whatsapp has been sharing the data/information of its users with Facebook which in turn is used by Facebook for targeted advertisements. The Informant also alleged that by not charging any subscription fee since January, 2016 from its users, Whatsapp is indulging in predatory pricing. The relevant market was considered as “the market for instant messaging services using consumer communication apps though smartphones in India”. On the basis of evidence CCI concluded that even though there are other mobile messaging apps in the relevant market, Whatsapp enjoys a dominant position in the relevant market. With respect to the allegation of abuse of dominant position CCI noted that Whatsapp gives its users the option to ‘opt out’ of sharing information with Facebook within 30 days of agreeing to the updated privacy policy. It was contended by Whatsapp that Facebook family of companies will use such information for the purpose of improving their infrastructure and delivery systems. CCI also noted the user safeguards provided by Whatsapp i.e. all Whatsapp messages are provided with an end to end encryption which ensures that the messages sent on Whatsapp cannot be read by Whatsapp or any third party. Further the messages, photos etc. sent by users on Whatsapp is not shared on Facebook or any other apps of Facebook family of companies for any third party to see and nothing a user posts on those apps is shared by Whatsapp for any third party to see. CCI further noted that there are no significant costs preventing users from switching to other communication apps. With respect to the allegation of predatory pricing CCI noted that several other communication apps like Hike, Viber etc. are also available for free. CCI noted that Whatsapp was previously charging subscription fee from its users which was eventually scrapped. CCI noted that it seemed to be the industry practice that all communication apps are not charging any fee from their users. CCI was therefore of the opinion that even though Whatsapp enjoys a dominant position in the market no case of contravention of the provisions of Section 4 of the Competition Act, 2002 is made out.



United States of America (‘U.S.A.’) - Federal Trade Commission (‘FTC’)

FTC approves final order preserving competition in the market for industrial valves and switchboxes.
June 12, 2017

FTC has approved a final order settling charges that the proposed $3.15 billion acquisition of Pentair plc (‘Pentair’) by Emerson Electric Co. (‘Emerson’) would be anticompetitive. Emerson and Pentair are engaged in the business of manufacture of industrial valves and control products, including switchboxes which are widely used in the oil and gas, chemical, petrochemical, power and other industries. Switchboxes are devices used to monitor and control valves that regulate the flow of liquids and gases in industrial facilities. According to the complaint the merger would combine two leading manufacturers of switchboxes in the U.S.A. which account for about 60% of the market for switchboxes. The complaint further states that since switchboxes perform a critical safety function, the brand reputation and product reliability is important for consumers of switchboxes. For most of the consumers the switchboxes manufactured by Emerson and Pentair are the only reliable switchboxes. Further, considering the time and investment required to manufacture switchboxes as well as the time required to build a brand reputation, FTC was of the opinion that present and new competitors are not likely to restore the loss of competition which would be caused by the proposed merger. In terms of the final order Emerson is required to sell Pentair’s switchbox business, Westlock Controls to Connecticut based Crane Co. along with Westlock’s production facilities, intellectual property, confidential business information and the opportunity to hire Westlock employees.

FTC approves final order preserving competition in the market for pesticides.
June 13, 2017

FTC has approved a final order settling charges that the proposed merger of China National Chemical Corporation (‘ChemChina’) and Swiss global agricultural company Syngenta AG (‘Syngenta’) would be anticompetitive. The FTC complaint alleged that the merger is likely to harm competition in the U.S.A. markets for three pesticides:

  • the herbicide paraquat, which is used to clear fields prior to the growing season;
  • the insecticide abamectin, which protects primarily citrus and tree nut crops by killing mites, psyllid, and leafminers; and
  • the fungicide chlorothalonil, which is used mainly to protect peanuts and potatoes.

Syngenta owns the branded version of each of the said pesticides and has a significant share in the market. On the other hand, ADAMA which is a subsidiary of ChemChina is the first or second largest generic supplier of each of the said pesticides. The complaint alleged that the merger as proposed would eliminate the direct competition that exists between ChemChina and Syngenta in the market for the said pesticides. The complaint also alleged that the merger as originally proposed would likely result in the consumers being forced to pay higher prices for the pesticides or accept reduced services for these pesticides. In terms of the final order, to settle the FTC charges, ChemChina will sell all the rights and assets of ADAMA relating to the said pesticides to California based agrochemical company AMVAC.



European Union

EC fines Google 2.42 billion Euros for abuse of dominant position by giving prominence to its own comparison shopping service.
June 27, 2017

In 2004 Google entered the comparison shopping market in Europe with a product which was initially called ‘Froggle’. The product since 2013 is called ‘Google Shopping’. Google Shopping allows consumers to compare products and their prices online as well as find deals from online retailers/re-sellers. Comparison shopping services rely to a large extent on traffic to earn revenue. Further, heavy traffic attracts retailers/re-sellers to list their product on the comparison shopping service. EC held that Google is in a position of dominance in general internet search markets throughout the European Economic Area. EC further held that Google has abused the said dominant position by using its search engine to give prominence to its own comparison shopping service. It was found that when a consumer enters a query on the Google search engine, the results of Google Shopping are displayed at or near the top of the search results. Whereas the results of rival comparison shopping services are demoted. Evidence showed that even a highly ranked rival shopping service appears on average only on page four of Google’s search result and others appear even further down. As a result Google’s comparison shopping service is more visible to consumers whereas rival comparison shopping services are much less visible. Evidence further showed that consumers click far more often on the results that are more visible i.e. appear higher up in the search results. EC concluded that this breach of dominant position has allowed Google Shopping to make significant gains in traffic at the expense of its rivals and to the detriment of European consumers. EC has imposed a fine of 2.42 billion Euros on Google for the breach and has directed it to cease and desist from the illegal practice within 90 days of the date of decision.

 



Republic of India (comprising pronouncements on anti-competitive agreements, abuse of dominant position)

Indian Sugar Mills Association and Ors. v Indian Jute Mills Association and Ors. (MANU/CO/0092/2014)

 

The present information under section 19(1)(a) of the Competition Act, 2002 was filed by Indian Sugar Mills Association, National Federation of Co-operative Sugar Factories Ltd. and All India Flat Tape Manufacturers Association (collectively ‘Informants’) against Indian Jute Mills Association (IJMA) and Gunny Trade Association (GTA) (‘Opposite Parties’) respectively alleging an anti-competitive agreement between the members of IJMA and GTA with respect to fixing of sale price of jute packaging material by issuing of Daily Price Bulletin (DPB) by GTA for jute bags for the members of IJMA and the GTA to follow.

The Commission found itself in agreement with the findings of the Directorate General (DG) regarding the existence of a tacit agreement by way of action in concert by the members of GTA under the aegis of GTA to determine and control the price by publication of GTA, DPB and as the transacted prices were followed by the members of the GTA and IJMA the Commission held the impugned acts/conduct of IJMA and GTA to be in contravention of the provisions of section 3(3)(a)/ 3(3)(b) read with section 3(1) of the Act. The Commission issued a cease and desist order against the associations and imposed a penalty on IJMA and GTA @ 5% of the average turnover of the last three years. The Commission also imposed penalties on the persons who were members of the Executive Committee of IJMA and the Executive Committee and the DPB Sub-Committee of GTA @ 5% of the average income of the last three financial years.

The Commission also noted that the provisions of the Jute Packaging Materials (Compulsory Use in Packaging Commodities) Act, 1987 placing statutory requirement on the sugar mills to undertake sugar packaging using jute bags only, was against the principle of competitive neutrality as the entities manufacturing matching products were denied market access. Such a policy further not only restricted the choice of customers like sugar mills but it also led to escalating the cost which is ultimately borne by the end-consumers. Accordingly, the Commission expects the Government of India to re-assess the current market situation for removing the market distortions arising out of such policy.

 

In re: Collective boycott/refusal to deal by the Chemists & Druggists Association, Goa (CDAG), M/s Glenmark Company and M/s Wockhardt Ltd. (MANU/CO/0086/2014)

 M/s Varca Druggist & Chemists and others had filed an information with the then Director General (Investigations & Registrations), Monopolies and Restrictive Trade Practices Commission against Chemists & Druggists Association, Goa, (‘CDAG’ / the ‘Opposite Party No. 1)’) for its alleged anti-competitive practices. After repeal of the Monopolies and Restrictive Trade Practices Act, 1969, the said case was transferred to Competition Commission of India. The Commission passed an order under Section 27 of the Competition Act on 11.06.2012. Subsequently, the Commission was informed by Mr. Mario Vaz (the ‘Informant’) that CDAG had not complied with the above said order of the Commission and was restraining pharmaceutical companies such as M/s Glenmark Pharmaceuticals Limited (‘Opposite Party No. 2’) and M/s Wockhardt Limited (‘Opposite Party No. 3’) from doing business with his company. It was alleged that under the guidance of CDAG, all stockists of the Opposite Party No. 3 appeared to have formed a cartel and stopped receiving goods from the Opposite Party No. 3 so as to compel it to stop dealing with the Informant. It was also alleged that under the influence of CDAG, the Opposite Party No. 2 and the Opposite Party No. 3 stopped supplies to the Informant.

Commission observed that CDAG clearly disregarded the Commission’s order dated 11.06.2012 and indulged in anti-competitive conduct. By forcing pharma companies to discontinue supply through non-authorized stockist like the Informant, it continued to carry on its anti-competitive practices. Further, it forced pharmaceutical companies like M/s Glenmark Pharmaceuticals Limited and M/s Wockhardt Limited to follow its mandate by threatening the other stockists in Goa to stop taking supplies or suspend receiving supplies from them till such time they stopped supplies to the informant. The Commission directed CDAG to seize and desist from indulging in the anti-competitive practices and imposed a penalty of INR 10,62,062/-, calculated at the rate of 10% of the average receipts of CDAG for three financial years.

Shri Bijay Poddar v M/s Coal India Limited and its subsidiaries, (MANU/CO/0087/2014)

 Shri Bijay Poddar (‘Informant’) alleged that the terms and condition of Spot e-Auction Scheme 2007 (‘the Scheme’) introduced by M/s Coal India Limited and its subsidiaries (‘Opposite Parties’) were in contravention of the provisions of the Competition Act.  Informant further alleged that the forfeiture clause under the Scheme is arbitrary and illegal and in abuse of monopolistic power enjoyed by the Opposite Parties.

The Commission observed that the stipulations provided in clause 9.2 of the Scheme is in contravention of the provisions of Section 4(2)(a)(i) of the Competition Act whereby a buyer is saddled with penalty by way of forfeiture of EMD for non-lifting of coal after successful participation in the e-Auction without any  corresponding liability upon Opposite Parties for failure to deliver coal in respect of accepted bids. Such arrangement in the Scheme was noted to be a result of market power exercised by the Opposite Parties. Accordingly, the Commission held the Opposite Parties to be in contravention of the provisions of Section 4(2)(a)(i) of the Competition Act for imposing unfair conditions upon the bidders under the Scheme. Apart from issuing a cease and desist order, the Commission ordered modification of the terms and conditions of the Scheme suitably.

 

M/s Sai Wardha Power Company Ltd. v M/s Western Coalfields Ltd.  

The information under Section 19(1)(a) of the Competition Act, 2002 (‘Competition Act’) was filed by M/s. Sai Wardha Power Company Ltd. (‘the Informant’) against M/s. Western Coalfields Ltd. and M/s. Coal India Ltd. (collectively, ‘the Opposite Parties’) alleging contravention of the provisions of Section 4 of the Competition Act. In order to procure the supply of coal for its power plant, the Informant after having obtained linkage and letter of assurance on cost plus basis from the Opposite Parties, had entered into three Fuel Supply Agreements (‘FSAs’) for supply of coal from three different identified cost plus coal mines under the control of the Opposite Parties.  The Informant stated that the Opposite Parties enjoy virtual monopoly over production and supply of coal in India. The Informant alleged that the Opposite Parties, by abusing its dominant position, had forced the Informant to enter into one sided, anti-competitive FSAs under which the Informant had no bargaining power or power to negotiate whatsoever and in the absence of any alternative option for procurement of coal, the Informant was compelled to

accept the dictated terms and conditions stipulated in the FSAs.

The Commission established that the Opposite Parties operate independently of market forces and enjoy undisputed dominance in the relevant market of “production and supply of non- coking coal to the thermal power producers in India”. The Commission further held the Opposite Parties to be in contravention of the provisions of section 4(2)(a)(i) of the Competition Act for imposing unfair conditions in FSAs with the power producers for supply of non-coking coal. Commission directed the Opposite Parties to cease and desist from indulging in the conduct found to be in contravention of the provisions of the Competition Act and to make necessary modifications in FSAs in light of the observations and findings recorded by it.

 

M/s HT Media Limited Informant v M/s Super Cassettes Industries Limited, (MANU/CO/0080/2014]

M/s. HT Media Limited (‘the informant’) filed information under Section 19(1) (a) of the Competition Act, 2002 (‘Competition Act’) against M/s. Super Cassettes Industries Limited (‘the Opposite Party’) alleging inter alia contravention of Sections 3 and 4 of the Competition Act.

The Informant, a leading media companies had launched an FM radio channel called Fever 104. Opposite Party is engaged in manufacture, production and publication of music and videos. The Informant alleged that the Opposite Party has abused its dominant position by (i) charging excessive amount as license fees/royalty from the Informant for grant of rights for the broadcast of the Opposite Party’s music content on Fever 104 radio station; (ii) imposing minimum commitment charges (‘MCC’) to be paid to the Opposite Party per month irrespective of actual needle hour of broadcast of the Opposite Party’s music content by the Informant and (iii) making conclusion of licensing arrangements with the Opposite Party subject to the acceptance of license fees and MCC imposed by them. The Informant alleged that such imposition of exorbitant license fees and MCC by the Opposite Party is an unfair condition imposed by it for granting license to broadcast its music content on radio under the Competition Act which limits and restricts the right of the Informant to broadcast its music content of other music companies/composers thereby limiting the choice of music for the end consumers to only the opposite party’s music content and results in denial of market access for other music companies (publishers, copyright societies etc.) with less market share and bargaining power.

Commission held opposite party to be in contravention of Section 4(2)(a)(i) of the Competition Act. The Commission directed opposite party to cease and desist from formulating and imposing the unfair condition of MCC in its agreements and to suitably modify such unfair conditions within 3 months of the date of receipt of the Order. The Commission also imposed penalty at the rate of 8% of average turnover of the last three years of the Opposite Party amounting to INR 2,83,28,000.



United States of America (‘US’) - Federal Trade Commission (‘FTC’)

FTC issues complaint alleging proposed merger of fantasy sports sites as anticompetitive.
June 19, 2017

FTC has issued a complaint against DraftKings and FanDuel (collectively, ‘Parties’) which are the dominant providers of daily fantasy sports (‘DFS’) in the U.S.A. DraftKings is a private corporation incorporated in Delaware and headquartered in Boston, Massachusetts. FanDuel is a private limited company incorporated in the UK and headquartered in Edinburgh, Scotland. FanDuel does business in the U.S.A. through its wholly owned subsidiary, FanDuel Inc. which is incorporated in Delaware and headquartered in New York. The Parties compete in the market for DFS contests that offer a prize. Consumers who participate in the DFS contests pay an entry fee and select a professional line-up of athletes for a particular sport. The line-up of the consumers receives fantasy points based on the real-life performance of the selected athletes based on a scoring system. The consumers whose line-up receives the maximum fantasy points receive prizes from the Parties subject to other rules of the contest. The complaint alleges that the Parties compete to offer lower entry fees, larger contests and a better selection of sports. According to the complaint season long fantasy league are not a substitute for DFS due to the length of season-long contests, the limitations on number of entrants and several other issues. The complaint further alleges that entry or expansion by other providers is not likely to provide timely or sufficient competition to restore the loss of competition as a result of the proposed merger.



Republic of India – Competition Commission of India (‘CCI’)

CCI approves acquisition of 6.02% of fully diluted paid-up share capital of Flipkart Ltd. by Aceville Pte Ltd.
Combination Registration No. C-2017/04/501
May 12, 2017

The combination pertained to the acquisition of 6.02% of fully diluted paid-up share capital of Flipkart Ltd. (‘Flipkart’) by Aceville Pte Ltd (‘Aceville’). Flipkart and Aceville are collectively referred to as ‘Parties’. According to the proposed combination, in order to maintain its ownership percentage i.e. 6.02% in Flipkart, Aceville could subscribe to additional shares of Flipkart in future. Aceville was also entitled to nominate a director on the board of Flipkart. Aceville, a private company incorporated in Singapore, is an investment holding company. It is inter-alia, engaged in (i) providing internet access; and (ii) providing internet data center services. Flipkart, a public company incorporated in Singapore, is an investment holding company. Through its direct and indirect subsidiaries, it is inter-alia, engaged in the business of wholesale cash and carry of goods and providing market place based e-commerce platforms to facilitate trade between customers and sellers. CCI observed that there was no horizontal overlap between the Parties. Further, CCI also observed that since the Parties are not engaged in any activity which can be regarded as being at different stages of the production chain, no vertical relationship existed between them. Accordingly, CCI observed that the proposed combination was not likely to have any appreciable adverse effect on competition in India. The combination was consequently approved by CCI.

Notification regarding exemption from notifying a combination within thirty days mentioned in Section 6(2) of the Competition Act, 2002 (‘Act’).
June 29, 2017

The Central Government, in exercise of the powers conferred by Section 54 (a) of the Competition Act, 2002, has exempted every person or enterprise who is a party to a combination as referred to in Section 5 of the Act from giving notice within thirty days mentioned in Section 6(2) of the Act, subject to the provisions of Section 6(2A) and Section 43A of the Act, for a period of five years from the date of publication of the notification in the Official Gazette (i.e. June 29, 2017).



United Kingdom (‘UK’) – Competition and Market Authority (‘CMA’)

CMA accepts acquisition by David Lloyd’s Clubs Limited of 16 Virgin Active Limited gyms.
June 13, 2017

David Lloyd Clubs Limited (‘David Lloyd’) had agreed to acquire the business and assets of 16 gyms (‘Target Gyms’) from Virgin Active Limited (‘Virgin Active’). CMA was of the opinion that out of 16 Target Gyms, the acquisition of the Target Gyms in the local areas around Virgin Active Brighton and Virgin Active Clearview in Brentwood would result in substantial lessening of competition. CMA was of the opinion that in the said two locations the Target Gyms compete closely with the existing David Lloyd gyms. CMA was of the opinion that acquisition of the Target gyms in the said two locations would likely result in the gym users being prone to offers and facilities that were inferior as compared to areas with healthy competition. CMA was also of the opinion that the other existing gyms in the said two locations will not be able to restore the loss of competition which would result from the acquisition of the Target Gyms in the said locations. CMA did not find competition concerns in the other locations were Target Gyms were being acquired. However, subsequent to the proposal given by David Lloyd that it will not acquire the Target Gyms in the said two locations the Merger was accepted by CMA.



In house contributors

Avsi Malik Sharma
Parnika Medhekar  

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Doc ID: CL/21/17

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